UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________ to ___________
Commission File Number 0-18050
EAGLE PACIFIC INDUSTRIES, INC.
(Exact name of registrant as specified in its Charter)
MINNESOTA 41-1642846
(State of incorporation) (I.R.S. Employer Identification No.)
333 South Seventh Street
2430 Metropolitan Centre
Minneapolis, Minnesota 55402
(Address of principal executive offices)
Registrant's telephone number, including area code: (612) 371-9650
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X_ No___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of
the registrant as of February 28, 1997 was approximately $14,719,000 (based on
closing sale price of $3.13 per share as reported on the Nasdaq Small-Cap
Market).
The number of shares of the registrant's Common Stock, $.01 par value
per share, outstanding as of February 28, 1997 was 6,443,237.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Registrant's 1996 Annual Meeting of
Stockholders are incorporated by reference in Part III.
PART I
ITEM 1. BUSINESS
GENERAL
Eagle Pacific Industries, Inc., a Minnesota corporation (the
"Company"), manufactures and distributes polyvinyl chloride ("PVC") pipe and
polyethylene ("PE") tubing products with its primary markets West of the
Mississippi River in the United States. These products are used for turf and
water irrigation, natural gas, water wells, fiber optic lines, electronic and
telephone lines, and commercial and industrial plumbing. Due to the Company's
divergent background, a brief company history is provided.
The Company was incorporated under the laws of the State of Iowa in
1891 under the name Rath Packing Company. Until suspension of its operations in
1984, Rath Packing Company was engaged primarily in the meat processing and
packing business. Severe financial problems forced it to file a voluntary
petition for reorganization under Chapter 11 of Title XI of the United States
Bankruptcy Code on November 1, 1983. By the end of 1984 Rath Packing Company had
ceased virtually all operations with a substantial amount of claims unsatisfied.
In the spring of 1985, a group of investors, with no prior relationship
to Rath Packing Company, proposed a reorganization which was approved by the
Bankruptcy Court in November 1985. The Company (then known as Black Hawk
Holdings, Inc.) emerged from the reorganization as a publicly traded corporation
with approximately $42,000,000 of net operating loss carryforwards and no other
material assets or liabilities.
Following its reorganization in bankruptcy, the Company, and its newly
formed subsidiary, Liberty Capital Corp. ("Liberty"), raised capital in a
private offering completed on December 30, 1985, (the "Private Placement") in
order to provide financing for acquisitions by Liberty.
During 1988, the Company completed its first two acquisitions, both of
which were specialty food distributors. At the end of 1989, the Company changed
its strategic direction. The Company sold both of its food distribution
businesses and established a new subsidiary, Black Hawk Financial Corp. This
subsidiary was engaged in commercial finance secured lending activities.
During 1991, the Company made an investment of $12,000 to acquire a 48%
interest in International Commercial Services, Inc. ("ICS"). As a result of the
operating losses sustained by ICS, the Company wrote off this investment.
Additionally, the Company advanced $56,000 in loans to ICS. ICS was a start-up
sales/marketing company specializing in the food industry and had no prior
operating history. Also during the 1991 fiscal year, the Company experienced a
management change with the departures of its acting chairman, chief executive
officer, president, and a director. After such change in management, the
business of the Company was conducted by its board of directors which later
appointed a president. The Company attempted to conserve its assets and the
board considered alternatives for the Company's future. It was determined that
the Company should investigate the possibility of making acquisitions of other
entities.
In early January of 1992, the Company appointed four new members to the
board of directors: William H. Spell, Harry W. Spell, Richard W. Perkins and
Edward E. Strickland. Additionally, Harry W. Spell was elected Chairman of the
Board and Chief Executive Officer of the Company. William H. Spell was elected
president of Black Hawk Financial Corp. and subsequently became president of the
Company. During March of 1992, Bruce A. Richard was also elected to the board of
directors of the Company.
The strategic plan of the Company was changed from commercial lending
activities to attempting to acquire and own one or more profitable businesses
with earnings and cash flow. During 1992, the Company took a number of steps to
reposition itself to realize this new corporate strategy. The Company sold its
loan portfolio and loans receivable and ended its commercial finance business.
The Company also sold its equity investment in ICS to the majority shareholder
of ICS and restructured the loans, which were subsequently repaid.
In 1993, pursuant to its new strategic plan to acquire and own
profitable businesses with earnings and cash flow, the Company entered into a
Stock Purchase Agreement with the shareholders of Eagle Plastics, Inc. ("Eagle")
to purchase 90.77% of the outstanding Common Stock of Eagle, none of the Eagle
shareholders having had any prior affiliation with the Company prior to the
acquisition. The acquisition of the Eagle Common Stock (the "Eagle Acquisition")
was completed on December 17, 1993. The remaining Eagle Common Stock that was
not purchased by the Company was retained by Larry D. Schnase and G. Peter
Konen, officers and directors of Eagle and directors of the Company, who wished
to maintain an equity interest in Eagle and continue to operate it. The purchase
price for the Eagle Common Stock was $9,531,000 in cash and $2,075,000 in cash
was used to defease Eagle's Industrial Revenue Bond. As a result of the Eagle
Acquisition, Eagle became a 90.77% owned subsidiary of the Company and its
financial performance is consolidated with the Company's for financial reporting
purposes for the period subsequent to December 17, 1993 (date of acquisition).
In 1995, the Company entered into a Stock Purchase Agreement with the
shareholders of Pacific Plastics, Inc. ("Pacific") to purchase all of the
outstanding Common Stock of Pacific, none of the Pacific shareholders having had
any prior affiliation with the Company prior to the acquisition. The acquisition
of the Pacific Common Stock (the "Pacific Acquisition") was completed on July
10, 1995. The total consideration for the Pacific Common Stock was $6,750,000:
(i) $4,350,000 in cash; (ii) $1,700,000 in the form of a note to the sellers;
and (iii) $700,000 worth of Company Common Stock. In addition, $750,000 in cash
was paid to certain sellers in exchange for their agreement not to compete with
the Company or Pacific. As a result of the Pacific Acquisition, Pacific became a
100% owned subsidiary of the Company and its financial performance is
consolidated with the Company's for financial reporting purposes for the period
subsequent to July 10, 1995 (date of acquisition).
The Company's business focus is to be a holding company owning Eagle
and Pacific Common Stock. It is anticipated that if any future acquisitions were
made by the Company, they would be in an industry complementary to that of Eagle
and Pacific. Eagle, a Nebraska corporation located in Hastings, Nebraska, was
established in 1984. Pacific, an Oregon corporation, was established in 1967
with operations located in Hillsboro, Oregon and Midvale, Utah..
PRODUCTS
PVC pipe has become widely accepted in the building and construction
industry. A number of factors have caused this popularity including its low
cost, easy installation, lower weight than metal pipe and longer life. As a
result, PVC is replacing metal pipe in many construction situations. PE pipe is
expanding in its application and market share because of its flexibility and
strength.
The Company's products consist of 1/2 inch to 15 inch PVC pipe and PE
tubing for applications in the building and construction industry, turf and
water irrigation, natural gas, water wells, fiber optic lines, and electronic
and telephone lines. Although the manufacture and sale of PVC pipe and PE tubing
is generally viewed as a commodity business with price being the only purchasing
consideration, the Company has created brand name recognition for its products
while competing on price. The Company also looks for niches to enter, such as PE
tubing for turf irrigation, where it can establish itself as the primary
supplier and command higher margins. It also adds features to pipes such as
quick connect gaskets and longer pipe lengths that allow for easier
installation, as well as proprietary marking for brand identification. The
following comprise the Company's primary product lines:
Pure Core(R) is the Company's highest quality PE tubing. It is
recognizable by its white center made from virgin PE and its black, protective
outer layer made from carbon black enhanced PE. The walls of this premium pipe
are 25 percent thicker than called for by both the American Society for Testing
and Materials ("ASTM") and National Sanitation Foundation International ("NSFI")
standards. This product comes with a 50-year warranty and is pressure tested to
200 psi. Its primary markets and uses include municipal and domestic water
service for homes and office, and transporting potable liquids for the chemical
and food processing industries.
Poly-Flo is an all-black PE tubing product which meets the high quality
standards set by ASTM and NSFI, yet is offered at a lower price than Pure Core
pipe. It is produced from medium-density PE. One of the Company's fastest
growing products, green-striped Tough(R) Turf Pipe is included within the
Poly-Flo product line. Green-striped Tough Turf Pipe is also available in medium
density PE or high density 3408 PE. To the extent it is produced from medium
density PE, it is included within the Poly-Flo product line. 3408 high-density
pipe products are described below under 3408 Pipe.
Green-striped Tough Turf Pipe is a popular PE pipe in the lawn
irrigation industry. It is co-extruded with two green stripes to permanently
identify it as Tough Turf Pipe. This distinct, recognizable marking is unique to
Tough Turf Pipe. Part of its popularity is the Tough Lifetime Guarantee against
defects in materials and workmanship, covering the replacement cost of the pipe
and the related labor. The Company also serves its customers by providing pipe
sizing other than the traditional 1 inch diameter -- all with the Tough Lifetime
Guarantee, which is valid as long as the original purchaser owns his or her
property where Tough Turf Pipe is installed.
Tough Turf Pipe is a specialized pipe for the turf irrigation market,
and its primary use is in sprinkler systems for homes, office buildings, golf
courses, and industrial tracts. In addition to turf irrigation, primary markets
and uses for Poly-Flo pipe include domestic and municipal water service, and
limited applications for transporting potable fluids for the food and chemical
industries.
3408 Pipe is made from high-density 3408 polyethylene. This product
line includes both Tough Turf Main used for the mainline in irrigation systems
and green-striped (high density PE) Tough Turf Pipe. Pipe derived from
high-density 3408 PE can handle higher pressures than medium density PE tubing.
Tough Turf Main is a specialized pipe for the turf irrigation market and its
primary use is for the high pressure mainline in sprinkler systems for homes,
office buildings, golf courses, and industrial tracts. The 3408 Pipe is also
used for under slab heating systems and transporting hot potable liquids and
chemicals.
Utility grade Poly-Flex is a competitively priced utility-grade PE
tubing. This product carries a one-year warranty and is tested to 100 psi. Other
than transporting potable water, Poly-Flex is suitable for pressure
installations. Primary markets and uses include farm water systems, including
transporting water to outlying areas for livestock, plumbing/waste water and
drainage applications, and irrigation, which is primarily used in home and other
low pressure applications.
Union Carbide has developed a unique PE resin for use in small and
medium diameter pipe for gas distribution systems. Natural Gas Pipe is extruded
from this special resin and is marked with yellow stripes for quick
identification. This pipe is available in diameters up to 4 inches. The Company
has concentrated its marketing of Natural Gas Pipe on the after-market side of
the business, serving installers and contractors, instead of marketing directly
to the utility companies.
A major use of PVC pipe is transporting water under pressure. The
Company has developed several PVC pipe products for application at various
points in the water distribution system. A description of pressure pipe products
follows.
(i) PVC(R) WELL CASING. The Company offers a light-weight PVC pipe to
be used as casing in water wells. The Well Casing pipe is manufactured
out of high quality PVC and meets all NSFI and ASTM standards. As a
companion to its Well Casing pipe, the Company also offers a threaded
drop pipe for hanging submersible pumps. These heavy duty pipes are
made from Schedule 80 PVC and weigh one-seventh of an equivalent metal
pipe.
(ii) PRESSURE PIPE. This versatile pipe is used extensively in water
service lines, turf irrigation, water wells, and transporting crude oil
and salt water. It comes in diameters from 1/2 inch to 15 inches and in
lengths up to 40 feet.
(iii) WHITE AND GREY SCHEDULE 80. The Company offers an extra strong
PVC pipe for demanding industrial applications. Its thick, strong walls
stand up to most chemicals, giving it distinct advantages over
conventional metal pipe.
(iv) GASKET JOINT PIPE. Gasket Joint Pipe has a Reiber gasket to assure
leak-proof water mains and sewer pipe. Steel reinforced Reiber gaskets
are pre-stressed and molded in place to offer a tight and dependable
seal. The Company was one of the first in the industry to have the
capability to mold the Reiber gasket in place in its PVC pipe producing
the distinctive bell end on Gasket Joint Pipe.
Drain, Waste and Vent Pipe is used inside the home in non-pressurized
applications. It carries the NSFI approval, and therefore is a popular product
for use as waste drains and vents in the home.
Sewer Drain Pipe is used for the exterior transportation and storage of
waste water. When waste water leaves the home or industrial building, it moves
through Sewer Drain Pipe into a municipal sewer system or other reclamation
system. Sewer Drain Pipe is available with different wall thicknesses. The
thick-walled Sewer Drain Pipe is building code approved and easily identified by
its light green color. For rural and non-building code applications, a
thin-walled variety of Sewer Drain Pipe is available. These exterior pipes are
available in 4 inch through 8 inch diameters and are belled at one end for easy
joining. The Reiber gasket system is available on green Sewer Drain Pipe. For
leach fields and other similar applications, Sewer Drain Pipe is available with
two rows of 5/8 inch holes.
Coex Cellular Core is a relatively new product. It is a lighter weight
drain, waste and vent pipe for non-pressure applications. Coex Cellular Core is
a co-extruded pipe, with air injected PVC sandwiched between two thin layers of
solid PVC. Its lighter weight makes Coex Cellular Core easier to handle and more
affordable than heavier, solid PVC drain, waste and vent pipe. Its insulating
characteristics make Coex Cellular Core Pipe particularly desirable for all
public buildings. The Company's first sales of Coex Cellular Core Pipe occurred
in April 1990.
Electric and telephone duct is used by utility companies. Electric duct
is used for power lines, as well as electrical wiring both inside buildings and
underground. Telephone duct is used by communications companies for insulating
their telephone communication lines, which are still made of copper.
Fiber optic pipe is used for protecting underground fiber optic cables.
This tubing is purchased mainly by large communications companies such as AT&T,
Sprint and MCI, or by railroad companies such as Southern Pacific which lay the
pipe beside their railroad tracks, and then lease space on their own fiber optic
lines to the communications companies.
The remainder of PVC and PE products are made up of specialty products.
These include snow poles, Fiber SenSys products used in security applications,
and several new products designed for the consumer market such as plastic
fencing and plastic lumber.
MARKETING AND CUSTOMERS
The Company markets it products through a combination of independent
sales representative companies, factory salespersons, and inside sales/customer
service representatives. Independent sales representative companies are
primarily assigned geographic territories. Factory salespersons are primarily
assigned to specific product lines and customers. The Company's primary markets
are west of the Mississippi River in the continental United States.
The Company offers a wide variety of warranty programs on its products,
which have been provided ever since the particular product has been introduced
by the Company. These warranties apply to failures in pipe due to defects in
material or workmanship. Generally, warranties are for one year, however, the
Pure Core product has a fifty year warranty while Tough Turf Pipe has its own
unique lifetime warranty, which is valid as long as the original purchaser owns
his or her property where Tough Turf Pipe is installed. These warranties extend
in scope from replacement of the defective pipe to payment of all costs of
replacing the defective pipe, including labor. The Company maintains product
liability insurance to cover such warranty claims, but to date, warranty
reserves have been sufficient to cover warranty claims.
In addition to the warranty programs, the Company offers many of the
industry-standard promotional sales programs, such as volume rebates and
discounts. In addition, the Company offers a frequent buyer program, which is
unique to the industry. The frequent buyer program allows customers to select
products from a catalogue based on points earned from pipe purchases. The
Company believes its officers' and managers' experience, reputation for high
quality products and service, and unique promotional programs provide it with a
strong position in the plastic pipe industry.
The Company has a broad and diverse group of customers. There were no
sales to a single customer in 1996, 1995, or 1994 which accounted for more than
10% of total net sales of the Company.
COMPETITION
The plastic pipe industry is estimated at $3.6 billion in annual sales.
Although there are many PE tubing and PVC pipe manufacturers that are larger
than the Company, most produce large diameter pipe (15 inch to 30 inch). Among
producers of small and medium diameter pipe (1/2 inch to 15 inch) like the
Company, the Company believes few have greater financial or other resources than
the Company. Because of shipping costs, competition is usually regional, instead
of national, in scope. Within its primary markets, the Company believes it is
one of the largest producers of PE tubing and PVC pipe. However, because
extrusion of plastic pipe is not a proprietary process, although equipment
intensive, there can be no assurance that current or new competitors will not
obtain financial resources sufficient to exceed those of the Company and thus
intensify competition. Finally, although the Company believes it has reduced the
commodity nature of its business, pricing pressure will continue and could
affect the Company's margins.
MANUFACTURING AND SOURCES OF SUPPLIES
Extrusion is a common manufacturing process used in the production of
plastic products. In the production of plastic pipe, PVC resin or PE pellets are
placed in an extrusion machine. Once in the extrusion machine, the PVC or PE
material is heated into molten plastic which is pulled through a sizing
apparatus to produce pipe or tubing of the required diameter. The newly extruded
pipe or tubing is moved through a water cooling trough, marked to indicate the
identity of the pipe or tubing and cut to length. The products are then stored
for shipping.
All of the Company's manufacturing is performed at three of its
facilities in Hastings, Nebraska, Hillsboro, Oregon and Midvale, Utah. It has 34
extrusion lines to produce its PE and PVC products. These extrusion lines are
capable of producing pipe from 1/2 inch to 15 inches in diameter. In producing
its pipe, the Company acquires its PVC and PE resins in bulk, mainly by rail
car. All three of the Company's manufacturing facilities have compound centers
for PVC resin. Compounding consists of precisely mixing various waxes,
colorants, UV protectants and lubricants to the base PVC resin to create the
appropriate compound resin for each extrusion application. By performing its own
PVC compounding, the Company has been able to lower its raw material costs.
PE material used by the Company is purchased in compounded form, ready
for direct use in the extruder. Because of the different properties of PE
plastic, it is not cost effective to acquire the technology to perform the
Company's own PE compounding.
Compounded resins are transported to the extrusion equipment directly
by a conveyer feeding system. Once the pipe is produced it is automatically
marked with the appropriate identification information and cut to the desired
length. Multiple warehousing and outdoor storage facilities are used to store
finished product. Inventory is shipped from such storage to customers by common
carrier or by vehicles of the Company for orders close to a manufacturing
facility.
At each phase of the manufacturing process the Company pays great
attention to quality and producing a consistent product. Every PE and PVC
product is thoroughly examined for compliance with standards of ASTM. The
Company has established a Quality Control Department and has its own testing lab
for both resin and finished goods quality assurance. As a result of these steps,
the Company believes very few defective finished products reach its customers.
The Company acquires raw materials from various sources. During the
years ended December 31, 1996, 1995 and 1994, purchases of such raw materials
from two vendors totaled 61%, 72% and 74%, respectively, of total material
purchases. The Company maintains strong relationships with its key raw material
vendors to ensure the quality and availability of raw material. The PVC and
polyethylene resin industries have maintained capacities well above demand,
therefore, the Company is confident that its source of raw materials will be
adequate for the foreseeable future.
BUSINESS SEASONALITY
Due to general weather constraints in the geographic markets that the
Company operates in, the demand for the Company's products tends to be seasonal.
In an effort to take some of the seasonality out of the business, the Company
offers extended spring dating terms to its better paying customers in order to
move product during the winter months. Notwithstanding spring dating, the
Company experiences fluctuations in sales, accounts receivable, and inventory
levels during the year.
BACKLOG
The Company strives to keep delivery lead times to a minimum in order
to meet customer needs. However, due to the seasonality of the business, lead
times can occasionally approach 30 days. The backlog on February 28, 1997 was
8,120,000 pounds compared to 8,505,000 pounds on February 29, 1996.
EMPLOYEES
The Company currently employs 331 employees of which 15 are in
administration, 49 in sales and shipping and 267 in manufacturing. None of the
Company's employees are represented by a labor union and the Company has never
experienced any work stoppages.
ITEM 2. PROPERTIES
The Company's executive offices are located in leased office space in
Minneapolis, Minnesota. This space is adequate for the operation of the
Company's business. The Company's manufacturing and warehouse facilities are
located in Hastings, Nebraska, Hillsboro, Oregon, Midvale, Utah, and Baker City,
Oregon. The Company both owns and leases portions of its facilities in Hastings,
Nebraska. The facilities in Hillsboro, Oregon are owned, while the Midvale, Utah
and Baker City, Oregon facilities are leased.
With the exception of the Midvale, Utah facility, the Company expects
that the productive capacity of the owned and leased facilities are sufficient
for business requirements in the foreseeable future. The Company is currently in
the process of developing a new facility in the Salt Lake Valley area. The
Midvale, Utah facility is not located on a rail spur and its size is not
adequate to meet current and future demands. The manufacturing facilities, as
currently equipped, are operating at approximately 80% of capacity.
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any material legal proceedings against it or
any of its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is currently traded on the Nasdaq Small Cap Market
under the symbol "EPII." Prior to September 6, 1994, when the Company became
listed on the Nasdaq Small Cap Market, the Company's Common Stock was traded on
the National Association of Securities Dealers Over-the- Counter Bulletin Board.
The Company's Series A Preferred Stock does not trade. The following table sets
forth the high and low bid prices for each fiscal quarter in 1996 and 1995.
High Low
Year ended December 31, 1996:
First quarter $3-1/2 $2-1/4
Second quarter 3-1/8 2
Third quarter 3-3/8 1-5/8
Fourth quarter 2-1/4 1-3/8
Year ended December 31, 1995:
First quarter $3-1/2 $2-1/4
Second quarter 3-1/8 2
Third quarter 3-3/8 1-5/8
Fourth quarter 2-1/4 1-3/8
The bid quotations represent interdealer prices and do not include retail
mark-ups, mark-downs, or commissions and may not necessarily represent actual
transactions. At February 28, 1997, the Company had approximately 1,880
shareholders of record.
The Company has never paid a cash dividend on its Common Stock. Payment of
Common Stock dividends is at the discretion of the Board of Directors subject to
the Company's lending arrangements. The Board of Directors plans to retain
earnings, if any, for operations and does not intend to pay Common Stock
dividends in the near future. However, dividends are paid by the Company on its
Series A 7% Convertible Preferred Stock.
RECENT SALES OF UNREGISTERED SECURITIES. On November 13, 1996 the Company issued
34,047 shares of common stock to a director in exchange for shares of common
stock of Eagle Plastics, Inc. of equivalent value. As an exemption from
registration for this transaction, the Company relied upon Section 4(2) of the
Securities Act of 1933 as a transaction by an issuer not involving a public
offering.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS:
<S> <C> <C> <C> <C> <C>
Net sales $ 65,280,138 $ 51,330,127 $ 34,076,224 $ 602,466 $ --
Gross profit 15,173,356 9,391,883 9,608,859 112,361 --
Operating expenses 10,044,450 7,680,038 5,702,515 798,622 767,854
Operating income(loss) 5,128,906 1,711,845 3,906,344 (686,261) (767,854)
Interest expense 2,637,341 2,932,563 2,242,757 73,483 --
Other income 46,533 136,597 22,504 18,138 51,879
Income(loss) from
continuing operations 3,479,313 (864,824) 1,400,434 (682,839) (690,557)
Extraordinary loss (1,728,353) -- -- (205,000) --
Net income(loss) 1,750,960 (864,824) 1,400,434 (887,839) (690,557)
Net income(loss) applicable
to common stock 1,660,169 (1,058,513) 1,207,145 (893,414) (690,557)
Primary earnings(loss) per
common and common
equivalent share:
Income(loss) from
continuing operations $ 0.52 $ (0.27) $ 0.27 $ (0.21) $ (0.20)
Extraordinary loss (0.26) -- -- (0.06) --
------------ ------------ ------------ ------------ ------------
$ 0.26 $ (0.27) $ 0.27 $ (0.27) $ (0.20)
============ ============ ============ ============ ============
Fully diluted earnings(loss)
per common and common
equivalent share:
Income(loss) from
continuing operations $ 0.49 $ (0.27) $ 0.24 $ (0.21) $ (0.20)
Extraordinary loss (0.24) -- -- (0.06) --
------------ ------------ ------------ ------------ ------------
$ 0.25 $ (0.27) $ 0.24 $ (0.27) $ (0.20)
============ ============ ============ ============ ============
Weighted average number of
common and common
equivalent shares
outstanding 6,607,124 3,899,587 4,507,321 3,349,693 3,369,206
DECEMBER 31, 1996 1995 1994 1993 1992
FINANCIAL POSITION:
Working capital $ 1,126,244 $ 450,932 $ 3,975,553 $ 2,326,948 $ 608,122
Total assets 35,426,564 31,917,782 19,181,172 17,827,025 649,421
Long-term and subordinated
debt 11,008,012 11,743,512 9,426,460 10,094,231 --
Deferred liabilities 72,384 263,595 806,705 135,677 --
Stockholders' equity 8,024,004 4,575,075 4,030,373 2,646,112 612,971
</TABLE>
All share and per share information has been adjusted to reflect the
four-for-one reverse stock split in 1991.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS. The following table sets forth items from the Company's
Consolidated Statement of Operations as percentages of net revenues:
1996 1995 1994
------ ------ ------
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 76.8 81.7 71.8
Gross Profit 23.2 18.3 28.2
Operating expenses 15.4 15.0 16.7
Operating income 7.9 3.3 11.5
Other income (expense) (4.1) (5.3) (6.8)
Income (loss) before income taxes and
extraordinary loss 3.8 (2.0) 4.7
Income tax (benefit) expense (1.5) (0.3) 0.6
Income (loss) before extraordinary loss 5.3 (1.7) 4.1
Extrordinary loss on debt prepayments 2.6 -- --
Net Income (loss) 2.7% (1.7)% 4.1%
On July 10, 1995, the Company acquired all of the outstanding common
stock of Pacific Plastics, Inc. and its wholly-owned subsidiary, Arrow Pacific
Plastics, Inc. (Pacific). As Pacific was not acquired by the Company until July
1995, operating results may not be comparable with prior years. Pro forma
results, reflecting operations as if the acquistion had occurred at the
beginning of 1994 are provided in Note 2 of the financial statements. A
discussion of the pro forma results is made whenever it is deemed to enhance the
reader's understanding of the Company's operating results.
Eagle Pacific Industries posted record net sales in 1996, rising 27%
from 1995 to 1996 and by 51% from 1994 to 1995. Higher volumes, primarily due to
the acquisition of Pacific, were responsible for the growth in revenues. The
increase in volume in 1996 was partially offset by weak sales in the fourth
quarter of 1996 due to severe winter weather in the Pacific Northwest. Pounds
sold rose 40% from 1995 to 1996 and by 46% from 1994 to 1995. The discrepancies
between sales in dollars and pounds is due to vastly different pricing
situations that existed between the three years being analyzed. Prices in 1996
were at recent history lows, 1995 prices reached record high levels, and 1994
prices rose steadily throughout the year. On a pro forma basis, sales in dollars
decreased 6% from 1995 to 1996 and increased 8% from 1994 to 1995, while sales
in pounds increased 5% and 1%, respectively. The small pro forma sales increases
in pounds are due to capacity constraints at the Company's three manufacturing
facilities.
The increase in the gross profit as a percentage of net sales from 1995
to 1996 is primarily due to the stabilization of polyvinyl chloride (PVC) and
polyethylene (PE) raw material costs and selling prices during 1996. The primary
reason for the decline in the gross profit as a percentage of net sales from
1994 to 1995 is fluctuating PVC and PE raw material prices and the reaction of
the plastic pipe market to these price changes during 1995. During the first six
months of 1995 raw material prices increased, partly due to higher foreign
demand. Since part of the price increase was derived from foreign markets, the
Company was not able to fully pass along the raw material price increases to its
domestic customers. During the last six months of 1995, PVC and PE raw material
prices decreased significantly due to an abrupt halt in foreign demand. To
maintain its market share, the Company was required to lower its prices at the
same rate as raw material price changes. As higher priced inventory was sold at
the lower market prices, gross profits decreased significantly. During 1994, the
Company enjoyed record gross profits as a percentage of net sales due to
steadily rising prices throughout the year. The Company was able to fully pass
along the raw material price increases to its customers since the increases were
created from strong domestic demand.
The increase in operating expenses as a percentage of net sales from
1995 to 1996 is primarily due to lower selling prices in 1996, partially offset
by administrative efficiencies gained from the Pacific acquisition. The decrease
in operating expenses as a percentage of net sales from 1994 to 1995 is due to
higher selling prices in 1995 and administrative efficiencies gained from the
Pacific acquisition. Operating expenses as a percentage of sales on a pro forma
basis were 14.4% for 1994 and 1995. The increase in operating expenses from the
1994 and 1995 pro forma results to 1996 is due to lower selling prices in 1996
compared to 1994 and 1995.
Interest expense decreased from 1995 to 1996 due to the debt
refinancing, described below, and new common equity obtained in the spring of
1996, which allowed the Company to eliminate 40% of the high cost subordinated
debt and related non-cash interest amortization. The increase in interest
expense from 1994 to 1995 is due to the debt incurred from the Pacific
acquisition.
The income tax provisions for 1996, 1995 and 1994, were calculated
based upon management's estimate of the annual effective rates, reduced by
federal net operating loss (NOL) carryforwards utilized and state tax credits,
as well as in 1996 NOL carryforwards expected to be used in future periods. Due
to more profitable operations and future expected profits, an income tax benefit
of $1,000,000 was recorded in 1996 representing a change in the deferred tax
asset valuation allowance relating to a portion of the NOL carryforwards which
are now expected to be utilized in the future.
FINANCIAL CONDITION. The Company's financial condition improved due to
the strong operating profits and the debt refinancing in 1996, partially offset
by higher capital expenditures during the year. The debt refinancing included
the payoff of $3.0 million of subordinated debt, resulting in a $1.7 million
non-cash charge to operations, net of taxes, representing the write-off of
unamortized finance costs and prepaid interest. In addition, the Company
obtained $1.5 million of new common equity, converted a majority of its
outstanding preferred stock to common stock and consolidated its credit
facilities. The restructuring benefited the Company by reducing loan principal
and interest payments and dividends, and by improving liquidity through
increased borrowing capacity.
Cash generated from operating activities was $5.8 million in 1996
compared to $6.2 million and $840,000 in 1995 and 1994, respectively. Profits
and depreciation and amortization were the primary sources of cash generated
from operating activities in 1996. Cash generated from operating activities in
1995 resulted from of a $4.9 million reduction of inventory acquired in the
Pacific acquisition.
The Company used $3.5 million, $6.0 million, and $735,000 for investing
activities in 1996, 1995, and 1994, respectively. The primary uses of cash were
capital expenditures in 1996 and 1994 and the purchase of Pacific in 1995.
Capital expenditures increased substantially in 1996 due to the construction of
a new polyethylene production facility in Hastings, Nebraska and related
equipment additions.
Cash used for financing activities was $2.6 million and $517,000 in
1996 and 1994, respectively. The Company generated $106,000 from financing
activities in 1995. The primary uses of cash in 1996 and 1994 were repayments of
long-term debt and the revolving credit loan.
The Company has commitments for capital expenditures of approximately
$400,000 for the purchase of equipment as of December 31, 1996. Sources of
liquidity include future operating cashflows, the revolving credit line,
additional long-term debt financing, and the sale of Company equity securities
under either a private or public offering. The Company believes that it has the
financial resources needed to meet business requirements in the foreseeable
future, including capital expenditures for expanding manufacturing capacity and
working capital requirements.
OUTLOOK. The statements contained in this Outlook section are based on
managements current expectations. These statements are forward looking and
actual results may differ materially.
The Company expects the demand for plastic pipe and tubing to grow as
acceptance of plastic pipe over metal pipe continues and the overall economy
continues to grow. Industry growth projections call for annual sales growth
rates for plastic pipe and tubing of four percent or greater per year through
1998. The Company has historically been able, and expects in the future, to grow
at rates substantially in excess of the industry averages due to its emphasis on
customer satisfaction, product quality and differentiation and inovative
promotional programs. The Company's strategy has been, and continues to be, to
concentrate growth in the higher profit products and geographic regions.
To fully implement its growth strategy, the Company will be required to
look to external sources to fund future capital expenditures and/or
acquisitions. The Company expects to spend approximately $5.0 million for
capital additions in 1997, as the Company continues its efforts to increase
capacities at all three manufacturing facilities to meet current and future
demands. If the Company is unable to obtain the external funding needed, growth
will be confined to a level that can be supported by internally generated
capital.
The Company's gross margin percentage is a sensitive function of PVC
and PE raw material resin prices. In a rising or stable market, margins and
sales volume have historically been higher and conversely, in falling markets
sales volumes and margins have historically been lower. Due to the commodity
nature of PVC and PE resin and the dynamic supply and demand factors worldwide,
it is very dificult to predict gross margin percentages or assume that
historical trends will continue.
The Company's net operating loss carryforwards (NOLs) are available
through the year 2010, however, the majority expire by the year 2000. The actual
amount of available NOLs which will be utilized is dependent on future profits
and based on current projections, it appears that a portion of the NOLs which
expire in 1997-2000 will not be fully utilized.
The Company's future results of operations and the other forward
looking statements contained in this Outlook section, in particular the
statements regarding growth in the plastic pipe industry, capital spending and
resin prices, involve a number of risks and uncertainties. In addition to the
factors discussed above, the other factors that could cause actual results to
differ materially are the following: business conditions and the general
economy, competitive factors, such as major capacity increases from competition,
and weather factors.
The Company believes that it has the product offerings, facilities,
personnel, and competitive and financial resources for continued business
success, but future revenues, costs, margins, and profits are all influenced by
a number of factors, as discussed above.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements and Schedules.
CONSOLIDATED FINANCIAL STATEMENTS PAGE NUMBER
Independent Auditors' Report 14
Consolidated Statements of Operations 15
Consolidated Balance Sheets 16
Consolidated Statements of Stockholders' Equity 17
Consolidated Statements of Cash Flow 18
Notes to Consolidated Financial Statements 19
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
of Eagle Pacific Industries, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Eagle Pacific
Industries, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. Our
audits also included the financial statement schedule listed in the index at
Item 14. These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Eagle Pacific
Industries, Inc. and subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ Deloitte & Touche LLP
- --------------------------
Deloitte & Touche LLP
Minneapolis, Minnesota
February 14, 1997
<TABLE>
<CAPTION>
EAGLE PACIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
- --------------------------------------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
NET SALES $ 65,280,138 $ 51,330,127 $ 34,076,224
COST OF GOODS SOLD 50,106,782 41,938,244 24,467,365
------------ ------------ ------------
Gross profit 15,173,356 9,391,883 9,608,859
------------ ------------ ------------
OPERATING EXPENSES:
Selling expenses 7,113,184 5,335,754 3,856,345
General and administrative expenses 2,931,266 2,344,284 1,846,170
------------ ------------ ------------
10,044,450 7,680,038 5,702,515
------------ ------------ ------------
OPERATING INCOME 5,128,906 1,711,845 3,906,344
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (2,637,341) (2,932,563) (2,242,757)
Minority interest (68,470) 55,297 (95,657)
Other income 46,533 136,597 22,504
------------ ------------ ------------
(2,659,278) (2,740,669) (2,315,910)
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY LOSS 2,469,628 (1,028,824) 1,590,434
INCOME TAX (BENEFIT) EXPENSE (NOTE 9) (1,009,685) (164,000) 190,000
------------ ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS 3,479,313 (864,824) 1,400,434
EXTRAORDINARY LOSS ON DEBT PREPAYMENTS,
LESS INCOME TAX BENEFIT OF $80,500 (NOTE 5) 1,728,353 -- --
------------ ------------ ------------
NET INCOME (LOSS) 1,750,960 (864,824) 1,400,434
PREFERRED STOCK DIVIDENDS (90,791) (193,689) (193,289)
------------ ------------ ------------
NET INCOME (LOSS) APPLICABLE TO COMMON $ 1,660,169 $ (1,058,513) $ 1,207,145
STOCK ============ ============ ============
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE OUTSTANDING:
Primary:
Income (loss) before extraordinary loss $ 0.52 $ (0.27) $ 0.27
Extraordinary loss on debt prepayments (0.26) -- --
------------ ------------ ------------
Net income (loss) $ 0.26 $ (0.27) $ 0.27
============ ============ ============
Fully diluted:
Income (loss) before extraordinary loss $ 0.49 $ (0.27) $ 0.24
Extraordinary loss on debt prepayments (0.24) -- --
------------ ------------ ------------
Net income (loss) $ 0.25 $ (0.27) $ 0.24
============ ============ ============
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Primary 6,607,124 3,899,587 4,507,321
Fully diluted 7,332,050 3,899,587 5,890,821
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
EAGLE PACIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (NOTE 5) 1996 1995
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 303,043
Restricted cash -- 500,000
Accounts receivable, less allowance for doubtful accounts and
sale discounts of $195,100 and $157,900, respectively 6,373,994 6,322,387
Inventories (Note 3) 10,279,169 8,174,957
Deferred income taxes (Note 9) 340,000 --
Other 196,482 153,118
------------ ------------
Total current assets 17,189,645 15,453,505
PROPERTY AND EQUIPMENT, NET (Note 4) 11,486,019 9,354,748
OTHER ASSETS:
Prepaid interest (Note 5) 1,388,688 2,907,880
Goodwill, less accumulated amortization of $262,500 and
$172,100, respectively 3,650,298 3,202,631
Deferred financing costs, less accumulated amortization of
$239,200 and $367,300, respectively 866,418 541,949
Deferred income taxes (Note 9) 660,000 --
Non-compete agreement, less accumulated amortization
of $79,500 and $26,500, respectively (Note 2) 185,496 238,500
Other -- 218,569
------------ ------------
Total other assets 6,750,900 7,109,529
------------ ------------
$ 35,426,564 $ 31,917,782
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable (Note 5) $ 4,649,102 $ 5,521,505
Accounts payable 8,020,368 5,252,683
Accrued liabilities 1,442,180 1,209,321
Current maturities of long-term debt (Note 5) 1,951,751 3,019,064
------------ ------------
Total current liabilities 16,063,401 15,002,573
LONG-TERM DEBT, less current maturities (Note 5) 7,035,562 5,356,762
SUBORDINATED DEBT (Note 5) 3,972,450 6,386,750
DEFERRED COMPENSATION (Note 6) 72,384 263,595
MINORITY INTEREST 258,763 333,027
COMMITMENTS AND CONTINGENCIES (Note 7) -- --
STOCKHOLDERS' EQUITY (Note 8):
Series A preferred stock, 7% cumulative dividend; convertible;
$2 liquidation preference; no par value; authorized 2,000,000 shares;
issued and outstanding 18,750 and 1,383,500 shares, respectively 37,500 2,767,000
Undesignated stock, $.01 per share; authorized 18,000,000 shares;
none issued and outstanding -- --
Common stock, par value $.01 per share; authorized 30,000,000 shares;
issued and outstanding 6,443,237 and 4,152,940 shares, respectively 64,432 41,529
Additional paid-in capital 37,211,090 32,757,381
Unearned compensation on stock options (96,241) (204,232)
Notes receivable from officers and employees for purchase of
common stock (66,343) --
Accumulated deficit (29,126,434) (30,786,603)
------------ ------------
Total stockholders' equity 8,024,004 4,575,075
------------ ------------
$ 35,426,564 $ 31,917,782
============ ============
See notes to consolidated financial statements
</TABLE>
<TABLE>
<CAPTION>
EAGLE PACIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Series A Additional
Preferred Stock Common Stock Paid-in
Shares Amount Shares Amount Capital
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 1,371,000 $ 2,742,000 3,566,563 $ 35,665 $ 30,803,682
Net income -- -- -- -- --
Dividends on preferred stock -- -- -- -- --
Issuance of preferred stock (Note 8) 12,500 25,000 -- -- --
Issuance of common stock (Note 8) -- -- 16,667 167 49,833
Common stock options granted (Note 8) -- -- -- -- 408,464
Common stock options vested (Note 8)
-- -- -- -- --
------------ ------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1994 1,383,500 2,767,000 3,583,230 35,832 31,261,979
Net loss -- -- -- -- --
Dividends on preferred stock -- -- -- -- --
Issuance of common stock (Note 8) -- -- 569,710 5,697 1,495,402
Common stock options vested (Note 8)
-- -- -- -- --
------------ ------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1995 1,383,500 2,767,000 4,152,940 41,529 32,757,381
Net income -- -- -- -- --
Dividends on preferred stock -- -- -- -- --
Issuance of common stock (Note 8) -- -- 730,547 7,305 1,604,807
Conversion of preferred stock (1,364,750) (2,729,500) 1,559,750 15,598 2,713,902
Common stock options vested (Note 8) -- -- -- -- --
Warrant issued in debt refinancing -- -- -- -- 135,000
Stock purchases (Note 8) -- -- -- -- --
------------ ------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1996 18,750 $ 37,500 6,443,237 $ 64,432 $ 37,211,090
============ ============ ============ ============ ============
[WIDE TABLE CONTINUED FROM ABOVE]
Notes Receivable
from officers and
Unearned employees for
Compensation on purchase of Accumulated
Stock Options common stock Deficit Total
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 -- -- $(30,935,235) $ 2,646,112
Net income -- -- 1,400,434 1,400,434
Dividends on preferred stock -- -- (193,289) (193,289)
Issuance of preferred stock (Note 8) -- -- -- 25,000
Issuance of common stock (Note 8) -- -- -- 50,000
Common stock options granted (Note 8) $ (408,464) -- --
Common stock options vested (Note 8)
102,116 -- -- 102,116
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1994 (306,348) -- (29,728,090) 4,030,373
Net loss -- -- (864,824) (864,824)
Dividends on preferred stock -- -- (193,689) (193,689)
Issuance of common stock (Note 8) -- -- -- 1,501,099
Common stock options vested (Note 8)
102,116 -- -- 102,116
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1995 (204,232) -- (30,786,603) 4,575,075
Net income -- -- 1,750,960 1,750,960
Dividends on preferred stock -- -- (90,791) (90,791)
Issuance of common stock (Note 8) -- -- -- 1,612,112
Conversion of preferred stock -- -- -- --
Common stock options vested (Note 8) 107,991 -- -- 107,991
Warrant issued in debt refinancing -- -- -- 135,000
Stock purchases (Note 8) -- $ (66,343) -- (66,343)
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1996 $ (96,241) $ (66,343) $(29,126,434) $ 8,024,004
============ ============ ============ ============
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
EAGLE PACIFIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995 1994
<S> <C> <C> <C>
Net income (loss) $ 1,750,960 $ (864,824) $ 1,400,434
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary loss on debt prepayments 1,728,353 -- --
Minority interest 68,470 (55,297) 95,657
Increase in deferred interest payable -- -- 624,800
(Gain) loss on disposal of fixed assets (10,401) (544) 265
Depreciation and amortization 1,564,684 1,336,410 1,038,040
Loan discount amortization 329,724 345,170 234,000
Prepaid interest amortization 435,160 735,619 --
Deferred income taxes (1,078,000) -- --
Change in assets and liabilities, net of acquisition:
Accounts receivable - (increase) decrease (51,607) 2,040,037 (1,004,214)
Inventories - (increase) decrease (2,104,212) 4,883,583 (902,013)
Other current assets - (increase) decrease (43,364) 129,341 (17,670)
Accounts payable - increase (decrease) 2,767,685 (2,227,281) (599,700)
Accrued liabilities - increase (decrease) 391,359 (111,644) (31,693)
Other 8,622 (11,125) --
------------ ------------ ------------
Net cash provided by operating activities 5,757,433 6,199,445 837,906
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Pacific Plastics, Inc., net of cash acquired -- (4,195,035) --
Purchases of property and equipment (3,451,076) (1,171,689) (748,806)
Purchases of minority interest (519,749) -- --
Payment under noncompete agreement -- (750,000) --
Proceeds from restricted cash 500,000 -- --
Proceeds from property and equipment disposals 40,150 13,425 13,312
Decrease in other assets -- 100,000 --
Notes receivable from officers and employees for purchase
of common stock (66,343) -- --
------------ ------------ ------------
Net cash used in investing activities (3,497,018) (6,003,299) (735,494)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Payments) borrowings under note payable, net (872,403) 1,194,284 416,985
Proceeds from long-term debt 8,029,950 1,961,624 --
Payment for prepaid interest -- (1,500,000) --
Repayment of long-term debt (10,478,521) (1,399,072) (815,812)
Payment of debt issuance costs (598,256) -- --
Issuance of common stock 1,446,563 43,750 50,000
Issuance of preferred stock, net of offering costs -- -- 25,000
Payment of preferred stock dividend (90,791) (193,689) (193,289)
------------ ------------ ------------
Net cash (used in) provided by financing activities (2,563,458) 106,897 (517,116)
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (303,043) 303,043 (414,704)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 303,043 -- 414,704
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ -- $ 303,043 $ --
============ ============ ============
See notes to consolidated financial statements.
</TABLE>
EAGLE PACIFIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION - The consolidated financial
statements include the accounts of Eagle Pacific Industries, Inc. and its
subsidiaries (the "Company"). At December 31, 1996 the Company owns 100% of
Pacific Plastics, Inc. and its wholly-owned subsidiary, Arrow Pacific Plastics,
Inc. ("Pacific"), and 96.0% of Eagle Plastics, Inc. ("Eagle"). All significant
intercompany accounts and transactions have been eliminated.
The minority interest shown in the consolidated financial statements
represents the outside stockholders' 4.0% and 8.2% interest in the common equity
of Eagle at December 31, 1996 and 1995, respectively.
CASH AND CASH EQUIVALENTS - Cash equivalents consist principally of money
market and short-term commercial paper investments with initial maturities of
three months or less.
INVENTORIES - Inventories are stated at the lower of cost, determined by
the first-in, first-out (FIFO) method, or market.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost and are
depreciated over the estimated useful life of each asset using the straight-line
method. Leasehold improvements are depreciated over the shorter of the lease
term or the estimated useful lives of the improvements. The carrying value is
evaluated for impairment based on historical and projected undiscounted cash
flows of the Company.
GOODWILL - Goodwill has been recorded for the excess of the purchase price
over the fair value of the net assets acquired and is being amortized using the
straight-line method over 40 years. The carrying value is evaluated for
impairment based on historical and projected undiscounted cash flows of the
Company.
DEFERRED FINANCING COSTS - Deferred financing costs are amortized over the
term of the related indebtedness using the effective interest method.
FAIR VALUE OF FINANCIAL INSTRUMENTS - In accordance with the requirements
of Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments", management estimates that the carrying value of
outstanding debt obligations approximate fair value. The estimated fair value
amounts have been determined through the use of discounted cash flow analysis
using interest rates currently available to the Company for issuance of debt
with similar terms and remaining maturities.
PRODUCT WARRANTY - The Company's products are generally under warranty
against defects in material and workmanship for a period of one year; however,
one of the Company's products has a 50-year warranty and another has a lifetime
warranty for as long as the original purchaser owns the property where this
product is installed. The Company has established an accrual for these
anticipated future warranty costs.
SALES - Sales are recorded at the time of shipment of the product.
INCOME TAXES - The Company utilizes the asset and liability method of
accounting for income taxes as set forth in Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes". Deferred income tax
assets and liabilities are computed annually for differences between the
financial statement and income tax basis of assets and liabilities that will
result in taxable or deductible amounts in the future based on enacted tax laws
and rates applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.
NET INCOME (LOSS) PER COMMON SHARE - Primary income (loss) per common and
common equivalent share was computed by dividing net income (loss) by the
weighted average number of common and common equivalent shares outstanding.
Common stock equivalents in 1996 and 1994 result from the assumed exercise of
stock options and warrants using the modified treasury stock method. Such method
assumes the exercise of all dilutive options and warrants and the application of
the aggregate proceeds as if the funds were first applied to the repurchase of
20% of the outstanding common shares and the remaining balance of the funds were
applied to reduce short- or long-term borrowings. Common stock equivalents were
not used in 1995 as their effect would have been antidilutive because of the net
loss. Fully diluted earnings per common and common equivalent share for the year
ended December 31, 1996 and 1994, were computed based on the assumed exercise of
stock options and warrants using the modified treasury stock method and the
assumed conversion of the Series A Preferred Stock.
ESTIMATES - The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
SIGNIFICANT VENDORS - The Company acquires raw materials from various
sources. During the years ended December 31, 1996, 1995 and 1994, purchases of
such raw materials from two vendors totaled 61%, 72% and 74%, respectively, of
total material purchases.
2. ACQUISITION OF PACIFIC PLASTICS, INC.
On July 10, 1995, the Company acquired all of the outstanding common stock
of Pacific. Pacific extrudes polyvinyl chloride pipe and polyethylene tubing
products which are marketed primarily in the northwestern United States. The
purchase price of Pacific was $6,750,000, consisting of $4,350,000 in cash,
$1,700,000 in the form of a note to the previous owners of Pacific (Sellers),
and 262,210 shares of the Company's common stock valued at $700,000. Because
84,210 shares of the 262,210 shares issued were not registered for public sale
by March 1, 1996 the holders have the right to require the Company to repurchase
up to 84,210 shares at 80% of market price at the time of the repurchase
request. In addition, the Company paid $750,000 in cash to two of the Sellers in
exchange for their agreement not to compete with the Company for five years.
The Company financed the cash portion of the purchase and noncompetition
agreements from borrowings on a new revolving credit line (Revolver) and term
loan (Term Loan) of $3,184,000 and $1,916,000, respectively. Additional proceeds
from the Revolver were used to repay Pacific's existing line of credit. Both the
Revolver and the Term Loan were paid off in May 1996 (Note 5).
The $1,700,000 note payable to the Sellers requires the Company to make 36
monthly payments of principal and interest at a fixed rate of 9% per annum or
aggregate payments of $54,059 per month. The Sellers' note is an obligation of
Pacific, secured by the stock of Pacific acquired by the Company and is
guaranteed by the Company.
The Company also entered into a three-year and a two-year employment
contract with two of the Sellers with whom the Company entered into noncompete
agreements. Such contracts provide for base salary and standard benefits. In
consideration for entering into such employment contracts, the Company granted
each Seller stock options to purchase 100,000 shares of the Company's common
stock at $3.125 per share.
This acquisition was accounted for under the purchase method of accounting. The
Company included the results of operations of Pacific subsequent to the
acquisition. The fair value of the assets acquired less the liabilities assumed
exceeded the purchase price by $5,316,000. This excess was recorded as a
reduction to property and equipment and noncompete agreements of $4,831,000 and
$485,000, respectively.
The following unaudited pro forma condensed combined statements of operations
data reflects the combined operations of the Company and Pacific during the
years ended December 31, 1995 and 1994, as if the acquisition had occurred at
the beginning of 1994. The unaudited pro forma condensed combined statements of
operations data may not necessarily reflect the actual results of operations of
the Company which would have resulted had the acquisition occurred as of the
dates presented. The unaudited pro forma information is not necessarily
indicative of future results of operations for the combined companies.
YEAR ENDED DECEMBER 31, 1995 1994
Revenues $ 69,495,000 $ 64,106,000
Gross profit 12,302,000 16,249,000
Net (loss) income (505,000) 3,809,000
Net (loss) income applicable to
common stock (699,000) 3,616,000
Net (loss) income per
common share $ (0.18) $ 0.76
3. INVENTORIES 1996 1995
Raw materials $ 3,151,146 $ 2,485,546
Finished goods 7,128,022 5,689,411
------------ ------------
$ 10,279,169 $ 8,174,957
============ ============
4. PROPERTY AND EQUIPMENT 1996 1995
Land $ 523,678 $ 495,664
Buildings and leasehold improvements 2,687,673 1,364,752
Machinery and equipment 10,586,322 7,955,641
Transportation equipment 327,613 341,447
Furniture and fixtures 399,622 405,748
Construction-in-progress -- 615,298
------------ ------------
14,524,908 11,178,550
Less accumulated depreciation 3,038,889 1,823,802
------------ ------------
$ 11,486,019 $ 9,354,748
============ ============
5. DEBT
At December 31, 1996, the Company had outstanding borrowings of $4,649,102
under the revolving credit loan agreement of $16,500,000, subject to borrowing
base restrictions. The Company may borrow up to 85% of "eligible" accounts
receivable, as defined, and 55% of "eligible" inventory, as defined. At December
31, 1996, the Company had additional borrowings available of approximately
$4,300,000 which is based on available collateral. The revolving credit loan
expires May 9, 2000. Interest is payable monthly at the bank's national base
rate, plus .25% (8.5% at December 31, 1996). The agreement also includes a
commitment fee of .5% of the unused portion of the credit loan, payable monthly.
At December 31, 1995, the Company had outstanding borrowings of $5,521,505. The
revolving credit loan is secured by substantially all assets of the Company.
Until all obligations of the revolving credit loan and term note are paid in
full, the Company must comply with certain covenants outlined in the loan
agreement, including tangible net worth, net cash flow and senior interest
coverage ratio. The weighted average interest rate on all short-term borrowings
at December 31, 1996 and 1995 was 8.5% and 8.8%, respectively.
In May 1996, the Company repaid $3.0 million of it's subordinated debt which
generated an extraordinary loss of $1,728,353, net of income taxes. This loss
consisted of unamortized prepaid interest of $1.5 million and deferred finance
costs of $228,000. The Company issued a 22 month warrant to purchase 215,000
shares of the Company's common stock in connection with the subordinated debt
prepayment. The $135,000 value assigned to the warrant is being amortized to
interest expense over the term of the refinanced debt. In conjunction with the
repayment, the Company obtained $1.5 million of new common equity and an
additional $3.4 million of term notes, and the Company repurchased approximately
one-half of the remaining Eagle minority interest. The additional term notes
were obtained through a bank refinancing which consolidated the Eagle and
Pacific term notes and revolving credit loans into a $8.0 million term note and
a $16.5 million revolving credit loan.
LONG-TERM DEBT AT DECEMBER 31 CONSISTED OF THE FOLLOWING:
1996 1995
Term promissory note (A) $ 7,332,900 $ --
Subordinated promissory note (B) 3,972,450 6,386,750
Term promissory note (C) 950,013 1,486,698
Various installment notes payable (D) 704,400 959,852
Term promissory note -- 3,278,334
Term promissory note -- 1,741,000
Note payable -- 909,942
----------- -----------
12,959,763 14,762,576
Less current maturities 1,951,751 3,019,064
----------- -----------
$11,008,012 $11,743,512
=========== ===========
(A) Payable $95,300 monthly, plus interest at LIBOR plus 2.75% (8.375% at
December 31, 1996), with remaining principal due May 9, 1999;. Secured by
substantially all assets of Eagle and subject to the terms and covenants of
the credit loan agreement outlined above.
(B) Due in full May 10, 1999, including interest at 10.4%. During 1996,
$3.0 million of this debt was repaid. This promissory note is subordinated
in payment to the Company's line of credit and term promissory notes. This
agreement requires the Company to maintain the same covenants as the
revolving credit loan. The original issue discount (OID) of $1,590,000
($954,000 after the $3,000,000 prepayment in 1996) has been netted against
the debt and is being accreted over the term of the debt using the
effective interest method. This accretion is included in interest expense.
At December 31, 1996 and 1995, unaccreted OID was $527,550 and $1,113,250,
respectively.
Pursuant to the terms of the Subordinated note, after January 1, 1999, the
lender was entitled to receive one or more contingent interest payments
based upon the profitability of Eagle. The maximum aggregate amount of the
contingent interest payments was to be 87.5% of Eagle's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for any four
consecutive quarters after January 1, 1998. The contingent interest was
being accrued over the period the debt was to be outstanding under the
interest method, using an estimate of the EBITDA calculation for the year
ended December 31, 1998, based upon the current year's EBITDA. On March 16,
1995, the Company executed an agreement with the Lender whereby the
contingent interest requirement was fixed in exchange for: (i) $1,500,000
in cash; (ii) $1,200,000 paid on September 1, 1995; (iii) $970,000 to be
paid on September 1, 1996; (iv) the issuance of 210,000 shares of the
Company's common stock; and (v) the issuance of a three year warrant to
purchase 100,000 shares of the Company's common stock at $3.00 per share.
The present value of the total consideration provided was recorded as
prepaid interest on the consolidated balance sheets and is being amortized
over the period the Subordinated note is outstanding using the interest
method. The estimate of the total contingent interest payable used to
accrue the contingent interest payable at December 31, 1994, approximated
the present value of the total consideration provided pursuant to the March
16, 1995, agreement described above.
(C) Due August 1, 1998; payable $54,059 monthly, including interest at 9%.
Secured by the stock of Pacific and guaranteed by the Company.
(D) Due dates ranging from March 1997 through July 2001, initially payable
$26,092 monthly, including interest at 7.5 to 9.38%. Secured by land and
equipment.
These amounts are shown in the consolidated balance sheets under the following
captions at December 31:
1996 1995
Current maturities of
long-term debt $ 1,951,751 $ 3,019,064
Long-term debt,
less current maturities 7,035,562 5,356,762
Subordinated debt 3,972,450 6,386,750
----------- -----------
$12,959,763 $14,762,576
=========== ===========
Aggregate annual maturities of long-term debt at December 31, 1996, are:
1997 $ 1,951,751
1998 1,747,712
1999 9,752,117
2000 21,999
2001 13,734
-----------
13,487,313
Less unamortized original issue discount 527,550
-----------
$12,959,763
===========
6. DEFERRED COMPENSATION
The Company previously adopted a plan of deferred compensation for a former
officer of the Company. Under this plan, the officer will receive $50,000 per
year for three years commencing when the Company's annual net income per share
equals or exceeds $1.00.
The Company also has an unfunded deferred compensation agreement which
provides upon retirement approximately $75,000. The present value at retirement
of total estimated deferred compensation is being accrued over the remaining
years of employment to the full eligibility date.
7. COMMITMENTS AND CONTINGENCIES
LITIGATION - The Company is periodically involved in various legal actions
arising in the normal course of business. At December 31, 1996, the Company was
not aware of any material legal proceedings against it or its subsidiaries.
LEASES - The Company has noncancelable operating leases for office space
which expire in June 1998 and for certain operating facilities which expire in
1997 and 2010. The office lease requires payment of a proportionate share of
real estate taxes and building operating expenses. The operating facility leases
contain provisions for increasing the monthly rent for changes in the Consumer
Price Index, and the lease expiring in 1997 includes two renewal options for a
period from 1998 through 2005.
Future minimum lease payments at December 31, 1996 were:
1997 $ 280,000
1998 158,000
1999 128,000
2000 128,000
2001 128,000
Thereafter 1,089,000
----------
$1,911,000
==========
Rent expense under all operating leases was $285,000, $234,000 and $166,000
for the years ended December 31, 1996, 1995 and 1994, respectively. During 1996,
1995 and 1994, the Company received $5,400, $6,000 and $15,000, respectively, of
sublease income. This sublease income has reduced the Company's rent expense.
8. STOCKHOLDERS' EQUITY
The Company issued 12,500 shares of Series A convertible Preferred Stock at
$2.00 per share during the year ended December 31, 1994. The preferred stock is
convertible, at the option of the holder, to common stock at a current
conversion ratio of one share of common stock for each share of preferred stock.
The Company may force conversion of the preferred stock at any time after the
Company's common stock trades in the public market for 20 consecutive days at an
average bid and asked price greater than $4.00 per share. The preferred stock
has voting rights based on the number of shares of common stock into which the
preferred stock is then convertible and has a liquidation preference of $2 per
share to common stock.
During 1996, the Company issued the following numbers of shares of common
stock for the following purposes: 600,000 for a private equity offering, 60,547
for the acquisition of additional shares of Eagle Plastics, Inc. stock,
1,559,750 for the conversion of 1,364,750 shares of preferred stock, and 70,000
for the exercise of stock options. During 1995, the Company issued the following
numbers of shares of common stock for the following purposes: 262,210 for the
purchase of Pacific, 210,000 to fix the Blair contingent interest, 72,500 for
the acquisition of Eagle stock and 25,000 for the exercise of stock warrants.
During 1994, the Company issued 16,667 shares of common stock in connection
with the purchase of equipment.
The Company's subsidiary, Eagle, has previously granted options to purchase
600,000 shares of Eagle's common stock at $.75 per share, which was $.75 below
estimated market value at the grant date. The difference between the exercise
price and the estimated market value is being amortized as compensation expense
over the vesting period of the options, which is December 1994 through December
1997. If such options are exercised, the Company's ownership of Eagle would
decrease to 88.2%.
In 1996, the Company established a leverage equity purchase program (LEPP).
Under the LEPP the Company may provide loans to board members and various
members of management to purchase common stock of the Company. The loans are
represented by five-year promisory notes, bear interest at a rate equal to the
rate on the Company's revolver loan (8.50% at December 31, 1996), and are
collateralized by the pledge of the purchased shares of common stock of the
Company.
9. INCOME TAXES
Deferred tax assets and liabilities represent temporary differences between
the basis of assets and liabilities for financial reporting purposes and tax
purposes. Deferred tax assets are primarily comprised of reserves which have
been deducted for financial statement purposes, but have not been deducted for
income tax purposes and the tax effect of net operating loss carryforwards. The
Company annually estimates the amount of deferred tax assets which it expects to
realize based on historical averages of pretax accounting income and estimates
of future pretax accounting income. The Company has recorded a valuation
allowance to reduce recorded deferred tax assets to the amount of deferred tax
benefit expected to be realized.
Deferred taxes as of December 31, 1996 and 1995, are summarized as follows:
1996 1995
Current deferred taxes:
Warranty reserve $ 13,000 $ 15,000
Allowance for doubtful accounts 76,000 67,000
Accrued expenses 175,400 154,000
Prepaid expenses 10,000 12,000
Federal net operating loss carryforwards 340,000 --
Less valuation allowance (274,400) (248,000)
------------ ------------
Total $ 340,000 $ --
============ ============
Long-term deferred taxes:
LIFO inventory recapture $ (535,000) $ (599,000)
Deferred compensation 160,000 207,000
Excess of book over tax depreciation (892,000) (951,000)
Noncompete agreement 192,000 208,000
Federal net operating loss carryforwards 14,313,000 15,181,000
Federal capital loss carryforward -- 366,000
State net operating loss carryforward -- 51,000
Tax credit carryforward 684,000 488,000
AMT credit carryforward 86,000 52,000
Other 15,000 30,000
Less valuation allowance (13,363,000) (15,111,000)
------------ ------------
Total $ 660,000 $ (78,000)
============ ============
The extraordinary loss in 1996 resulted in an increase in the net operating loss
carryforward and the valuation allowance of approximately $1.8 million and
$700,000, respectively.
Income tax expense for the years ended December 31, 1996, 1995 and 1994, consist
of the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current
Federal $ -- $ -- $ 50,000
State 68,315 (164,000) 140,000
Deferred - primarily federal (1,078,000) -- --
----------- ----------- -----------
Income tax (benefit) expense before (1,009,685) (164,000) 190,000
extraordinary loss
Income tax benefit from extraordinary loss on debt prepayments (80,500) -- --
----------- ----------- -----------
$(1,090,185) $ (164,000) $ 190,000
Income tax (benefit) expense =========== =========== ===========
</TABLE>
A reconciliation of the expected federal income taxes, using the effective
statutory federal rate of 35%, with the (benefit) provision for income taxes is
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Expected federal expense (benefit) $ 864,000 $ (362,000) $ 560,000
State taxes, net of federal benefit and tax credit 46,000 (222,000) 180,000
Expiration of capital loss carryforward 366,000 -- --
Change in valuation allowance (2,413,000) 407,000 (570,000)
AMT 69,000 -- --
Other 58,315 13,000 20,000
----------- ----------- -----------
$(1,009,685) $ (164,000) $ 190,000
=========== =========== ===========
</TABLE>
As of December 31, 1996, the Company had net operating loss carryforwards
for federal tax purposes of approximately $43,100,000. Under the Tax Reform Act
of 1986, certain future changes in ownership resulting from the sale or issuance
of stock may limit the amount of net operating loss carryforwards which can be
utilized on an anuual basis. These carryforwards expire if not utilized to
reduce future taxable income:
1997 $ 8,800,000
1998 6,100,000
1999 11,600,000
2000 11,400,000
2001 300,000
2002 500,000
2003 500,000
2004 700,000
2005 1,600,000
2007 300,000
2008 900,000
2010 400,000
10. RETIREMENT PLAN
The Company has a 401(k) plan covering substantially all employees. The
Company's discretionary contributions to the plan are determined annually by the
Board of Directors. The Company is also committed to matching a portion of
employees' voluntary contributions. Participants are 100% vested in their own
contributions and the Company's matching contribution immediately and in the
Company's discretionary contribution at the end of three years. Total amounts
contributed by the Company were $243,191, $58,999 and $112,942 for the years
ended December 31, 1996, 1995 and 1994, respectively.
11. STOCK-BASED COMPENSATION PLANS
The Company has 1991 and 1997 stock option plans (the "plans") which
provide for the granting of incentive or nonqualified stock options to key
employees. Generally, options outstanding under the plans: (i) are granted at
prices equal to the market value of the stock on the date of grant, (ii) vest
ratably over a three or four year vesting periods, and (iii) expire over a
period not greater than ten years from the date of grant. In addition, the
Company and its subsidiaries have outstanding stock options issued outside the
plans, which contain terms and conditions similar to those described above.
A summary of the status of the Company's stock options as of December 31,
1996, 1995, and 1994 and changes during the years ended on those dates is
presented below (shares in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
Wgtd Avg Wgtd Avg Wgtd Avg
Shares Exer Price Shares Exer Price Shares Exer Price
------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 2,169 $ 1.57 1,668 $ 1.13 1,644 $ 1.10
Granted 30 2.75 512 2.99 54 1.75
Exercised (70) .34 -- -- -- --
Canceled (3) 1.75 (11) 1.69 (30) .84
----- ------ -----
Outstanding at end of year 2,127 1.41 2,169 1.57 1,668 1.13
===== ====== =====
Options exercisable at year end 1,773 1,575 842
===== ====== =====
Options available for future grant 970 -- --
===== ====== =====
Weighted average fair value of
options granted during the year $ 1.49 $ 1.53
======= =======
</TABLE>
The Company applies Accounting Principles Board (APB) Opinion No. 25 and
related Interpretations in accounting for the plans. No compensation cost has
been recognized for options issued under the plans when the exercise price of
the options granted are at least equal to the fair value of the common stock on
the date of grant. If the exercise price is less than the fair value of the
common stock, the difference is recorded as unearned compensation and is
amortized over the vesting period of the option. Had compensation cost for the
Company's stock option plans been determined based on the fair value at the
grant date for awards in 1996 and 1995, consistent with the provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation", the Company's net income (loss) and per share amounts would have
changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net income (loss) applicable to common stock, as reported $ 1,660,169 $ (1,058,513)
Net income (loss) applicable to common stock, pro forma 1,615,169 (1,843,513)
Net income (loss) per common share, as reported $ 0.25 $ (0.27)
Net income (loss) per common share, pro forma $ 0.24 $ (0.47)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions and
results:
1996 1995
Dividend yield -- --
Expected volatility 25% 50%
Expected life of option 120 months 60 months
Risk free interest rate 6.66% 6.38%
Fair value of options on grant date $ 45,000 $ 785,000
The following table summarizes information about stock options outstanding
at December 31, 1996 (shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------- ----------------------
Range of Wgtd Avg Wgtd Avg Wgtd Avg
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Contractual Life(yr) Price Exercisable Price
------- ----------- -------------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ .34 295 1.8 $ .34 295 $ .34
.64 to .75 635 3.8 .74 485 .74
1.75 to 2.50 714 3.4 2.00 583 1.99
2.75 to 3.25 483 3.7 3.04 410 3.06
----- -----
.34 to 3.25 2,127 3.4 1.63 1,773 1.62
===== =====
</TABLE>
12. ADDITIONAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Noncash investing and financing activities:
Issuance of notes payable in connection with
the agreement extinguishing the contingent
interest $ -- $1,985,325 $ --
Issuance of common stock in connection with
the agreement extinguishing the contingent
interest -- 642,600 --
Value of warrants issued in connection with
the agreement extinguishing the contingent
interest -- 6,000 --
Issuance of common stock in connection with
the acquisition of Pacific -- 700,000 --
Issuance of notes payable in connection with
the acquisition of Pacific -- 1,700,000 --
Issuance of common stock in exchange for
Eagle stock 165,549 108,750 --
Issuance of common stock in exchange for
Preferred stock 2,729,500 -- --
Additional cash flow information:
Interest paid, including prepaid interest to
extinguish contingent interest 1,839,443 3,311,987 1,664,371
Income taxes paid (refunded) 38,656 (121,400) 224,700
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 relating to directors is incorporated by
reference to the section labeled "Election of Directors" and the information
relating to section 16(a) of the Exchange Act is incorporated by reference to
the section labeled "Compliance with section 16(a) of the Securities Exchange
Act," which sections appear in the Registrant's definitive Proxy Statement.
The names, ages and positions of the executive officers of the Company are
as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Harry W. Spell 73 Chairman of the Board
William H. Spell 40 Chief Executive Officer and Director
Bruce A. Richard 66 Vice Chairman of the Board, Secretary, Treasurer, and Director
G. Peter Konen 47 President and Director
Patrick M. Mertens 33 Chief Financial Officer
</TABLE>
HARRY W. SPELL has been Chairman of the Board of the Company since January
1992. He was formerly Chief Executive Officer of the Company from January 1992
through December 1996. In addition, Mr. Spell is the Chairman of the Board of
Peerless Industrial Group, which during 1995 completed the leveraged buyout of
Peerless Chain, Inc. Peerless is a manufacturer of chain and wire form products
with over $45 million of sales in 1995. Previously, Mr. Spell was involved with
the acquisitions of a specialty food products company and a manufacturer of
various clothing sportswear. He was employed by Northern States Power, a Fortune
500 company, from 1949 until August 1988 when he reached the mandatory
retirement age of 65 and he retired from all positions at Northern States Power
Company. Mr. Harry Spell was Senior Vice President, Finance and Chief Financial
Officer of Northern States Power Company from May 1983 until April 1988. Mr.
Harry Spell currently serves as a director of Appliance Recycling Centers of
America, Inc. and Peerless Industrial Group, as well as several private
organizations.
WILLIAM H. SPELL has been President and a director of the Company since
January 1992 and was named Chief Executive Officer of the Company in December
1996. He was formerly President of the Company from January 1992 through
December 1996. In addition, Mr. Spell is the Chief Executive Officer and a
Director of Peerless Industrial Group, which during 1995 completed the leveraged
buyout of Peerless Chain, Inc. Peerless is a manufacturer of chain and wire form
products with over $45 million of sales in 1995. Previously, Mr. Spell was
involved with the acquisitions of a specialty food products company and a
manufacturer of various clothing sportswear. From 1981 through 1988, Mr. Spell
was vice president and director of corporate finance at John G. Kinnard &
Company, Inc., a regional investment banking firm located in Minneapolis. Mr.
Spell serves as a director of Peerless Industrial Group, as well as several
private organizations. Mr. Spell has a B.S. and an M.B.A. degree from the
University of Minnesota.
BRUCE A. RICHARD has been a Director of the Company since March of 1992,
Secretary, Treasurer since the Summer of 1993 and Vice Chairman since February
1996. He also served as Chief Financial Officer of the Company from mid-1993 to
February 1996. In addition, Mr. Richard is the Chief Financial Officer of
Peerless Industrial Group, which during 1995 completed the leveraged buyout of
Peerless Chain, Inc. Peerless is a manufacturer of chain and wire form products
with over $45 million of sales in 1995. As a member of the Spell Investment
Group, Mr. Richard has been involved in numerous acquisitions and investment
activities. He retired as President and Chief Operating Officer of Northern
States Power Company, a Fortune 500 company, in July of 1986. He is a former
member of the Board of Regents of St. John's University, and is actively
involved in other philanthropic organizations.
G. PETER KONEN has been a Director of the Company since December 1993. He
has been Executive Vice President and Chief Operating Officer of Eagle since its
inception in 1984 and was named President of the Company in December 1996. Prior
to founding Eagle Plastics, he was Plant Manager with Western Plastics, a PVC
pipe and PE tubing manufacturer. Mr. Konen has over 28 years of experience in
the business of manufacturing and sales of plastic pipe.
PATRICK M. MERTENS came to the Company in May 1995 as Controller and was
promoted to Chief Financial Officer in December 1995. From 1986 to May of 1991,
he was a Senior Auditor, specializing in manufacturing clients, for Baird, Kurtz
& Dobson, CPA's. During his tenure at Baird, Kurtz & Dobson, Mr. Mertens was in
charge of the annual audit for Eagle Plastics, Inc. for three years. From 1991
to May of 1995 he was Assistant Controller of ISCO, Inc., a public company that
manufactures scientific and environmental instruments. Mr. Mertens has a B.S.
degree from Peru, Nebraska State College and an M.B.A. degree from the
University of Nebraska.
Harry W. Spell is William H. Spell's father.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) 1. Financial Statements
See Part II, Item 8 hereof.
2. Financial Statement Schedule
Title Schedule
----- --------
Valuation and Qualifying Accounts . . . . . . . . II
All schedules omitted are inapplicable or the information required is shown
in the Consolidated Financial Statements or notes thereto.
3. Exhibits
Exhibit Description
Number -----------
------
3.1 Articles of Incorporation of the Registrant, as amended to
date (Incorporated by reference to Exhibit 3 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995 - File No. 0-18050)
3.2 Bylaws of the Registrant (Incorporated by reference to Exhibit
3.2 to the Registrant's Registration Statement on Form S-4 -
File No. 33-29511)
10.1 Registrant's 1991 Stock Plan (Incorporated by reference to
Exhibit 10.22 to the Registrant's Form 10-K for the fiscal
year ended December 31, 1992 - File No. 0-18050)*
10.2 Tax Sharing Agreement between Registrant and Eagle Plastics,
Inc. dated December 17, 1993 (Incorporated by reference to
Exhibit 10.7 to the Registrant's Form 8-K dated December 17,
1993 - File No. 0-18050)
10.3 Eagle Stock Agreement dated December 17, 1993 regarding Eagle
Plastics, Inc. Common Stock held by minority shareholders and
option holders (Incorporated by reference to Exhibit 10.16 to
the Registrant's Form 8-K dated December 17, 1993 - File No.
0-18050)
10.4 Eagle Plastics, Inc. Stock Option Plan (Incorporated by
reference to Exhibit 10.17 to the Registrant's Form 8-K dated
December 17, 1993 - File No. 0-18050)*
10.5 Form of Agreement by and among the Registrant, Pacific
Plastics, Inc., Pacific Acquisition Corp., Loyal Sorensen and
Jarred Thompson. (Incorporated by reference to Exhibit 10.2 to
Registrant's Form 8-K dated July 10, 1995 - File No. 0-18050)
10.6 Form of Acknowledgment of Closing by and among the Registrant,
Pacific Plastics, Inc., Loyal Sorensen and Jarred Thompson
(Incorporated by reference to Exhibit 10.3 to Registrant's
Form 8-K dated July 10, 1995 File No. 0-18050)
10.7 Tax Sharing Agreement between Registrant and Pacific Plastics,
Inc. dated July 10, 1995 (Incorporated by reference to Exhibit
10.7 to Registrant's Form 8-K dated July 10, 1995 - File No.
0-18050)
10.8 Promissory Note and Stock Pledge Agreement dated July 10, 1995
between Arrow Pacific Plastics, Inc., former shareholders,
Registrant and Pacific Plastics, Inc. (Incorporated by
reference to Exhibit 10.14 to Registrant's Form 8-K dated July
10, 1995 - File No. 0-18050)
10.9 Registration Rights Agreement dated July 10, 1995 between the
Registrant and Loyal Sorensen, Zelda Sorensen, Jarred Thompson
and Sharron Thompson (Incorporated by reference to Exhibit
10.15 to Registrant's Form 8-K dated July 10, 1995 - File No.
0-18050)
10.10 Plan of Recapitalization dated March 16, 1995 among
Registrant, William Blair Mezzanine Capital Fund, L.P.
("Blair") and Eagle Plastics, Inc. ("Eagle") (Incorporated by
reference to Exhibit 10.29 to the Registrant's Form 10-KSB for
the fiscal year ended December 31, 1994 - File No. 0-18050)
10.11 Debenture Acquisition Agreement dated March 16, 1995 among
Registrant, Blair and Eagle (Incorporated by reference to
Exhibit 10.28 to the Registrant's Form 10-KSB for the fiscal
year ended December 31, 1994 File No. 0-18050)
10.12 Senior Subordinated Debenture of the Registrant dated March
16, 1995, in the principal amount of $7,500.00 in favor of
Blair (Incorporated by reference to Exhibit 10.17 to the
Registrant's Form 10-KSB for the fiscal year ended December
31, 1994 - File No. 0-18050)
10.13 Registration Agreement dated March 16, 1995 between Registrant
and Blair (Incorporated by reference to Exhibit 10.15 to the
Registrant's Form 10-KSB for the fiscal year ended December
31, 1994 - File No. 0-18050)
10.14 Registrant's 1997 Stock Option Plan*
10.15 Loan and Security Agreement dated May 10, 1996 between
Registrant, its subsidiaries and Fleet Capital Corporation
10.16 Employment Agreement between Patrick M. Mertens and Registrant
dated January 1, 1997*
10.17 Amendment Agreement dated May 10, 1996 between Registrant, its
subsidiaries and Blair
10.18 Warrant to purchase 215,000 shares of Common Stock of
Registrant granted to Blair
10.19 Co-Sale Agreement dated May 10, 1996 between Registrant and
Blair
10.20 Irrevocable Proxy agreement dated May 10, 1996 between
Registrant and Blair
10.21 Amendment Agreement regarding registration rights dated May
10, 1996 between Registrant and Loyal Sorensen, Zelda
Sorensen, Jarred Thompson and Sharron Thompson
10.22 Employment Agreement between William H. Spell and Registrant
dated January 1, 1997*
10.23 Employment Agreement between G. Peter Konen and Registrant
dated January 1, 1997*
10.24 Consulting Agreement and Release between Larry D. Schnase and
Registrant dated January 1, 1997*
10.25 Registrant's EBITDA Bonus Plan*
10.26 Registrant's Leveraged Equity Purchase Plan*
11 Statement of earnings per share
21 Subsidiaries of Registrant
Subsidiary State of Incorporation
---------- ----------------------
Eagle Plastics, Inc. Nebraska
Pacific Plastics, Inc. Oregon
Arrow Pacific Plastics, Inc.
(a subsidiary of Pacific Plastics, Inc.) Utah
23 Consent of Independent Auditors
24 Power of Attorney from certain directors and officers - see
"Signatures" on signature page of this Form 10-K
27 Financial Data Schedule
* compensatory plan or arrangement
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the last quarter of
1996.
(c) Exhibits
See Item 14(a)3 above.
SIGNATURES
Pursuant to the Requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
EAGLE PACIFIC INDUSTRIES, INC.
Dated: March 28, 1997 By: /s/ William H. Spell
-----------------------------------------
William H. Spell, Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
William H. Spell and Patrick M. Mertens his true and lawful attorneys-in-fact
and agents, each acting alone, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this Annual Report on Form 10-K and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully and to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all said attorneys-in-fact
and agents, each acting alone, or his substitute or substitutes, may lawfully do
or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ William H. Spell Chief Executive Officer and Director March 28, 1997
- ------------------------- (Principal Executive Officer)
/s/ Patrick M. Mertens Chief Financial Officer March 28, 1997
- ------------------------- (Principal Financial and Accounting Officer)
/s/ G. Peter Konen Director March 28, 1997
- -------------------------
/s/ George R. Long Director March 28, 1997
- -------------------------
/s/ Richard W. Perkins Director March 28, 1997
- -------------------------
/s/ Bruce A. Richard Director March 28, 1997
- -------------------------
/s/ Larry D. Schnase Director March 28, 1997
- -------------------------
/s/ Harry W. Spell Director March 28, 1997
- -------------------------
</TABLE>
SCHEDULE II
<TABLE>
<CAPTION>
VALUATION AND QUALIFYING ACCOUNTS
Balance at Balance at
Beginning Additions- Deductions- End
Description of Year Provisions Write-offs of Year
----------- ------- ---------- ---------- -------
Allowance for doubtful accounts and sales
discounts
<S> <C> <C> <C> <C>
Fiscal year ended December 31, 1996 $157,900 67,846 30,647 $195,100
Fiscal year ended December 31, 1995 $105,000 177,076 124,176 $157,900
Fiscal year ended December 31, 1994 $112,000 13,500 20,500 $105,000
</TABLE>
EXHIBIT 10.14
EAGLE PACIFIC INDUSTRIES, INC.
1997 STOCK OPTION PLAN
SECTION 1.
DEFINITIONS
As used herein, the following terms shall have the meanings indicated
below:
(a) "Affiliates" shall mean a Parent or Subsidiary of the Company.
(b) "Committee" shall mean a Committee of two or more directors
who shall be appointed by and serve at the pleasure of the
Board. In the event the Company's securities are registered
pursuant to Section 12 of the Securities Exchange Act of 1934,
as amended, each of the members of the Committee shall be a
"Non-Employee Director" within the meaning of Rule 16b-3, or
any successor provision, as then in effect, of the General
Rules and Regulations under the Securities Exchange Act of
1934 as amended.
(c) The "Company" shall mean Eagle Pacific Industries, Inc., a
Minnesota corporation.
(d) "Fair Market Value" shall mean (i) if such stock is reported
in the national market system or is listed upon an established
stock exchange or exchanges, the reported closing price of
such stock in such national market system or on such stock
exchange or exchanges on the date the option is granted or, if
no sale of such stock shall have occurred on that date, on the
next preceding day on which there was a sale of stock; (ii) if
such stock is not so reported in the national market system or
listed upon an established stock exchange, the average of the
closing "bid" and "asked" prices quoted by a recognized
specialist in the Common Stock of the Company on the date the
option is granted, or if there are no quoted "bid" and "asked"
prices on such date, on the next preceding date for which
there are such quotes; or (iii) if such stock is not publicly
traded as of the date the option is granted, the per share
value as determined by the Board, or the Committee, in its
sole discretion by applying principles of valuation with
respect to all such options.
(e) The "Internal Revenue Code" is the Internal Revenue Code of
1986, as amended from time to time.
(f) "Option Stock" shall mean Common Stock of the Company (subject
to adjustment as described in Section 12) reserved for options
pursuant to this Plan.
(g) The "Optionee" means an employee of the Company or any
Subsidiary to whom an incentive stock option has been granted
pursuant to Section 9; or a consultant or advisor to or
director, employee or officer of the Company or any Subsidiary
to whom a nonqualified stock option has been granted pursuant
to Section 10.
(h) "Parent" shall mean any corporation which owns, directly or
indirectly in an unbroken chain, fifty percent (50%) or more
of the total voting power of the Company's outstanding stock.
(i) The "Plan" means Eagle Pacific Industries, Inc. 1997 Stock
Option Plan, as amended hereafter from time to time, including
the form of Option Agreements as they may be modified by the
Board from time to time.
(j) A "Subsidiary" shall mean any corporation of which fifty
percent (50%) or more of the total voting power of outstanding
stock is owned, directly or indirectly in an unbroken chain,
by the Company.
SECTION 2.
PURPOSE
The purpose of the Plan is to promote the success of the
Company and its Subsidiaries by facilitating the retention of competent
personnel and by furnishing incentive to officers, directors,
employees, consultants, and advisors upon whose efforts the success of
the Company and its Subsidiaries will depend to a large degree.
It is the intention of the Company to carry out the Plan
through the granting of stock options which will qualify as "incentive
stock options" under the provisions of Section 422 of the Internal
Revenue Code, or any successor provision, pursuant to Section 9 of this
Plan, and through the granting of "nonqualified stock options" pursuant
to Section 10 of this Plan. Adoption of this Plan shall be and is
expressly subject to the condition of approval by the shareholders of
the Company within twelve (12) months before or after the adoption of
the Plan by the Board of Directors. Any incentive stock options granted
after adoption of the Plan by the Board of Directors shall be treated
as nonqualified stock options if shareholder approval is not obtained
within such twelve-month period.
SECTION 3.
EFFECTIVE DATE OF PLAN
The Plan shall be effective as of the date of adoption by the
Board of Directors, subject to approval by the shareholders of the
Company as required in Section 2.
SECTION 4.
ADMINISTRATION
The Plan shall be administered by the Board of Directors of
the Company (hereinafter referred to as the "Board") or by a Committee
which may be appointed by the Board from time to time (collectively
referred to as the "Administrator"). The Administrator shall have all
of the powers vested in it under the provisions of the Plan, including
but not limited to exclusive authority (where applicable and within the
limitations described herein) to determine, in its sole discretion,
whether an incentive stock option or nonqualified stock option shall be
granted, the individuals to whom, and the time or times at which,
options shall be granted, the number of shares subject to each option
and the option price and terms and conditions of each option. The
Administrator shall have full power and authority to administer and
interpret the Plan, to make and amend rules, regulations and guidelines
for administering the Plan, to prescribe the form and conditions of the
respective stock option agreements (which may vary from Optionee to
Optionee) evidencing each option and to make all other determinations
necessary or advisable for the administration of the Plan. The
Administrator's interpretation of the Plan, and all actions taken and
determinations made by the Administrator pursuant to the power vested
in it hereunder, shall be conclusive and binding on all parties
concerned.
No member of the Board or the Committee shall be liable for
any action taken or determination made in good faith in connection with
the administration of the Plan. In the event the Board appoints a
Committee as provided hereunder, any action of the Committee with
respect to the administration of the Plan shall be taken pursuant to a
majority vote of the Committee members or pursuant to the written
resolution of all Committee members.
SECTION 5.
PARTICIPANTS
The Administrator shall from time to time, at its discretion
and without approval of the shareholders, designate those employees,
officers, directors, consultants, and advisors of the Company or of any
Subsidiary to whom nonqualified stock options shall be granted under
this Plan; provided, however, that consultants or advisors shall not be
eligible to receive stock options hereunder unless such consultant or
advisor renders bona fide services to the Company or Subsidiary and
such services are not in connection with the offer or sale of
securities in a capital raising transaction. The Administrator shall,
from time to time, at its discretion and without approval of the
shareholders, designate those employees of the Company or any
Subsidiary to whom incentive stock options shall be granted under this
Plan. The Administrator may grant additional incentive stock options or
nonqualified stock options under this Plan to some or all participants
then holding options or may grant options solely or partially to new
participants. In designating participants, the Administrator shall also
determine the number of shares to be optioned to each such participant.
The Board may from time to time designate individuals as being
ineligible to participate in the Plan.
SECTION 6.
STOCK
The Stock to be optioned under this Plan shall consist of
authorized but unissued shares of Option Stock. One Million (1,000,000)
shares of Option Stock shall be reserved and available for options
under the Plan; provided, however, that the total number of shares of
Option Stock reserved for options under this Plan shall be subject to
adjustment as provided in Section 12 of the Plan. In the event that any
outstanding option under the Plan for any reason expires or is
terminated prior to the exercise thereof, the shares of Option Stock
allocable to the unexercised portion of such option shall continue to
be reserved for options under the Plan and may be optioned hereunder.
SECTION 7.
DURATION OF PLAN
Incentive stock options may be granted pursuant to the Plan
from time to time during a period of ten (10) years from the effective
date as defined in Section 3. Nonqualified stock options may be granted
pursuant to the Plan from time to time after the effective date of the
Plan and until the Plan is discontinued or terminated by the Board. Any
incentive stock option granted during such ten-year period and any
nonqualified stock option granted prior to the termination of the Plan
by the Board shall remain in full force and effect until the expiration
of the option as specified in the written stock option agreement and
shall remain subject to the terms and conditions of this Plan.
SECTION 8.
PAYMENT
Optionees may pay for shares upon exercise of options granted
pursuant to this Plan with cash, personal check, certified check or, if
approved by the Administrator in its sole discretion, Common Stock of
the Company valued at such Stock's then Fair Market Value, or such
other form of payment as may be authorized by the Administrator. The
Administrator may, in its sole discretion, limit the forms of payment
available to the Optionee and may exercise such discretion any time
prior to the termination of the option granted to the Optionee or upon
any exercise of the option by the Optionee.
With respect to payment in the form of Common Stock of the
Company, the Administrator may require advance approval or adopt such
rules as it deems necessary to assure compliance with Rule 16b-3, or
any successor provision, as then in effect, of the General Rules and
Regulations under the Securities Exchange Act of 1934, if applicable.
SECTION 9.
TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS
Each incentive stock option granted pursuant to this Section 9
shall be evidenced by a written stock option agreement (the "Option
Agreement"). The Option Agreement shall be in such form as may be
approved from time to time by the Administrator and may vary from
Optionee to Optionee; provided, however, that each Optionee and each
Option Agreement shall comply with and be subject to the following
terms and conditions:
(a) Number of Shares and Option Price. The Option
Agreement shall state the total number of shares
covered by the incentive stock option. To the extent
required to qualify the Option as an incentive stock
option under Section 422 of the Internal Revenue
Code, or any successor provision, the option price
per share shall not be less than one hundred percent
(100%) of the Fair Market Value of the Common Stock
per share on the date the Administrator grants the
option; provided, however, that if an Optionee owns
stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock
of the Company or of its parent or any Subsidiary,
the option price per share of an incentive stock
option granted to such Optionee shall not be less
than one hundred ten percent (110%) of the Fair
Market Value of the Common Stock per share on the
date of the grant of the option. The Administrator
shall have full authority and discretion in
establishing the option price and shall be fully
protected in so doing.
(b) Term and Exercisability of Incentive Stock Option.
The term during which any incentive stock option
granted under the Plan may be exercised shall be
established in each case by the Administrator. To the
extent required to qualify the Option as an incentive
stock option under Section 422 of the Internal
Revenue Code, or any successor provision, in no event
shall any incentive stock option be exercisable
during a term of more than ten (10) years after the
date on which it is granted; provided, however, that
if an Optionee owns stock possessing more than ten
percent (10%) of the total combined voting power of
all classes of stock of the Company or of its parent
or any Subsidiary, the incentive stock option granted
to such Optionee shall be exercisable during a term
of not more than five (5) years after the date on
which it is granted.
The Option Agreement shall state when the incentive stock
option becomes exercisable and shall also state the maximum term during
which the option may be exercised. In the event an incentive stock
option is exercisable immediately, the manner of exercise of the option
in the event it is not exercised in full immediately shall be specified
in the Option Agreement. The Administrator may accelerate the
exercisability of any incentive stock option granted hereunder which is
not immediately exercisable as of the date of grant.
(c) Other Provisions. The Option Agreement authorized
under this Section 9 shall contain such other
provisions as the Administrator shall deem advisable.
Any such Option Agreement shall contain such
limitations and restrictions upon the exercise of the
option as shall be necessary to ensure that such
option will be considered an "incentive stock option"
as defined in Section 422 of the Internal Revenue
Code or to conform to any change therein.
SECTION 10.
TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTIONS
Each nonqualified stock option granted pursuant to this Section 10
shall be evidenced by a written Option Agreement. The Option Agreement
shall be in such form as may be approved from time to time by the
Administrator and may vary from Optionee to Optionee; provided,
however, that each Optionee and each Option Agreement shall comply with
and be subject to the following terms and conditions:
(a) Number of Shares and Option Price. The Option Agreement shall
state the total number of shares covered by the nonqualified
stock option. Unless otherwise determined by the
Administrator, the option price per share shall be one hundred
percent (100%) of the Fair Market Value of the Common Stock
per share on the date the Administrator grants the option.
(b) Term and Exercisability of Nonqualified Stock Option. The term
during which any nonqualified stock option granted under the
Plan may be exercised shall be established in each case by the
Administrator. The Option Agreement shall state when the
nonqualified stock option becomes exercisable and shall also
state the maximum term during which the option may be
exercised. In the event a nonqualified stock option is
exercisable immediately, the manner of exercise of the option
in the event it is not exercised in full immediately shall be
specified in the stock option agreement. The Administrator may
accelerate the exercisability of any nonqualified stock option
granted hereunder which is not immediately exercisable as of
the date of grant.
(c) Withholding. The Company or its Subsidiary shall be entitled
to withhold and deduct from future wages of the Optionee all
legally required amounts necessary to satisfy any and all
withholding and employment-related taxes attributable to the
Optionee's exercise of a nonqualified stock option. In the
event the Optionee is required under the Option Agreement to
pay the Company, or make arrangements satisfactory to the
Company respecting payment of, such withholding and
employment-related taxes, the Administrator may, in its
discretion and pursuant to such rules as it may adopt, permit
the Optionee to satisfy such obligation, in whole or in part,
by electing to have the Company withhold shares of Common
Stock otherwise issuable to the Optionee as a result of the
option's exercise equal to the amount required to be withheld
for tax purposes. Any stock elected to be withheld shall be
valued at its Fair Market Value, as of the date the amount of
tax to be withheld is determined under applicable tax law. The
Optionee's election to have shares withheld for this purpose
shall be made on or before the date the option is exercised
or, if later, the date that the amount of tax to be withheld
is determined under applicable tax law. Such election shall be
approved by the Administrator and otherwise comply with such
rules as the Administrator may adopt to assure compliance with
Rule 16b-3, or any successor provision, as then in effect, of
the General Rules and Regulations under the Securities
Exchange Act of 1934, if applicable.
(d) Other Provisions. The Option Agreement authorized under this
Section 10 shall contain such other provisions as the
Administrator shall deem advisable.
SECTION 11.
TRANSFER OF OPTION
No incentive stock option shall be transferable, in whole or in part,
by the Optionee other than by will or by the laws of descent and
distribution and, during the Optionee's lifetime, the option may be
exercised only by the Optionee. If the Optionee shall attempt any
transfer of any incentive stock option granted under the Plan during
the Optionee's lifetime, such transfer shall be void and the incentive
stock option, to the extent not fully exercised, shall terminate.
The Administrator may, in its sole discretion, permit the Optionee to
transfer any or all nonqualified stock options to any member of the
Optionee's "immediate family" as such term is defined in Rule 16a-1(e)
promulgated under the Securities Exchange Act of 1934, or any successor
provision, or to one or more trusts whose beneficiaries are members of
such Optionee's "immediate family" or partnerships in which such family
members are the only partners; provided, however, that the Optionee
receives no consideration for the transfer and such transferred
nonqualified stock option shall continue to be subject to the same
terms and conditions as were applicable to such nonqualified stock
option immediately prior to its transfer.
SECTION 12.
RECAPITALIZATION, SALE, MERGER, EXCHANGE
OR LIQUIDATION
In the event of an increase or decrease in the number of shares of
Common Stock resulting from a subdivision or consolidation of shares or
the payment of a stock dividend or any other increase or decrease in
the number of shares of Common Stock effected without receipt of
consideration by the Company, the number of shares of Option Stock
reserved under Section 6 hereof and the number of shares of Option
Stock covered by each outstanding option and the price per share
thereof shall be adjusted by the Board to reflect such change.
Additional shares which may be credited pursuant to such adjustment
shall be subject to the same restrictions as are applicable to the
shares with respect to which the adjustment relates.
Unless otherwise provided in the stock option agreement, in the event
of an acquisition of the Company through the sale of substantially all
of the Company's assets and the consequent discontinuance of its
business or through a merger, consolidation, exchange, reorganization,
reclassification, extraordinary dividend, divestiture or liquidation of
the Company (collectively referred to as a "transaction"), all
outstanding options shall become immediately exercisable, whether or
not such options had become exercisable prior to the transaction;
provided, however, that if the acquiring party seeks to have the
transaction accounted for on a "pooling of interests" basis and, in the
opinion of the Company's independent certified public accountants,
accelerating the exercisability of such options would preclude a
pooling of interests under generally accepted accounting principles,
the exercisability of such options shall not accelerate. In addition to
the foregoing, in the event of such a transaction, the Board may
provide for one or more of the following:
(a) the complete termination of this Plan and cancellation of
outstanding options not exercised prior to a date specified by the
Board (which date shall give Optionees a reasonable period of time in
which to exercise the options prior to the effectiveness of such
transaction);
(b) that Optionees holding outstanding incentive or nonqualified
options shall receive, with respect to each share of Option Stock
subject to such options, as of the effective date of any such
transaction, cash in an amount equal to the excess of the Fair Market
Value of such Option Stock on the date immediately preceding the
effective date of such transaction over the option price per share of
such options; provided that the Board may, in lieu of such cash
payment, distribute to such Optionees shares of stock of the Company or
shares of stock of any corporation succeeding the Company by reason of
such transaction, such shares having a value equal to the cash payment
herein; or
(c) the continuance of the Plan with respect to the exercise of options
which were outstanding as of the date of adoption by the Board of such
plan for such transaction and provide to Optionees holding such options
the right to exercise their respective options as to an equivalent
number of shares of stock of the corporation succeeding the Company by
reason of such transaction.
The Board may restrict the rights of or the applicability of this
Section 12 to the extent necessary to comply with Section 16(b) of the
Securities Exchange Act of 1934, the Internal Revenue Code or any other
applicable law or regulation. The grant of an option pursuant to the
Plan shall not limit in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its
capital or business structure or to merge, exchange or consolidate or
to dissolve, liquidate, sell or transfer all or any part of its
business or assets.
SECTION 13.
SECURITIES LAW COMPLIANCE
No shares of Common Stock shall be issued pursuant to the Plan unless
and until there has been compliance, in the opinion of Company's
counsel, with all applicable legal requirements, including without
limitation, those relating to securities laws and stock exchange
listing requirements. As a condition to the issuance of Option Stock to
Optionee, the Administrator may require Optionee to (a) represent that
the shares of Option Stock are being acquired for investment and not
resale and to make such other representations as the Administrator
shall deem necessary or appropriate to qualify the issuance of the
shares as exempt from the Securities Act of 1933 and any other
applicable securities laws, and (b) represent that Optionee shall not
dispose of the shares of Option Stock in violation of the Securities
Act of 1933 or any other applicable securities laws.
As a further condition to the grant of any incentive or nonqualified
stock option or the issuance of Option Stock to Optionee, Optionee agrees to the
following:
(a) In the event the Company advises Optionee that it plans an
underwritten public offering of its Common Stock in compliance
with the Securities Act of 1933, as amended, and the
underwriter(s) seek to impose restrictions under which certain
shareholders may not sell or contract to sell or grant any
option to buy or otherwise dispose of part or all of their
stock purchase rights of the underlying Common Stock, Optionee
will not, for a period not to exceed 180 days from the
prospectus, sell or contract to sell or grant an option to buy
or otherwise dispose of any incentive or nonqualified stock
option granted to Optionee pursuant to the Plan or any of the
underlying shares of Common Stock without the prior written
consent of the underwriter(s) or its representative(s).
(b) In the event the Company makes any public offering of its
securities and determines in its sole discretion that it is
necessary to reduce the number of issued but unexercised stock
purchase rights so as to comply with any states securities or
Blue Sky law limitations with respect thereto, the Board of
Directors of the Company shall have the right (i) to
accelerate the exercisability of any incentive or nonqualified
stock option and the date on which such option must be
exercised, provided that the Company gives Optionee prior
written notice of such acceleration, and (ii) to cancel any
options or portions thereof which Optionee does not exercise
prior to or contemporaneously with such public offering.
(c) In the event of a transaction (as defined in Section 12 of the
Plan) which is treated as a "pooling of interests" under
generally accepted accounting principles, Optionee will comply
with Rule 145 of the Securities Act of 1933 and any other
restrictions imposed under other applicable legal or
accounting principles if Optionee is an "affiliate" (as
defined in such applicable legal and accounting principles) at
the time of the transaction, and Optionee will execute any
documents necessary to ensure compliance with such rules.
The Company reserves the right to place a legend on any stock certificate issued
upon exercise of an option granted pursuant to the Plan to assure compliance
with this Section 13.
SECTION 14.
RIGHTS AS A SHAREHOLDER
An Optionee (or the Optionee's successor or successors) shall have no
rights as a shareholder with respect to any shares covered by an option
until the date of the issuance of a stock certificate evidencing such
shares. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property),
distributions or other rights for which the record date is prior to the
date such stock certificate is actually issued (except as otherwise
provided in Section 12 of the Plan).
SECTION 15.
AMENDMENT OF THE PLAN
The Board may from time to time, insofar as permitted by law, suspend
or discontinue the Plan or revise or amend it in any respect; provided,
however, that no such revision or amendment, except as is authorized in
Section 12, shall impair the terms and conditions of any option which
is outstanding on the date of such revision or amendment to the
material detriment of the Optionee without the consent of the Optionee.
Notwithstanding the foregoing, no such revision or amendment shall (i)
materially increase the number of shares subject to the Plan except as
provided in Section 12 hereof, (ii) change the designation of the class
of employees eligible to receive options, (iii) decrease the price at
which options may be granted, or (iv) materially increase the benefits
accruing to Optionees under the Plan without the approval of the
shareholders of the Company if such approval is required for compliance
with the requirements of any applicable law or regulation. Furthermore,
the Plan may not, without the approval of the shareholders, be amended
in any manner that will cause incentive stock options to fail to meet
the requirements of Section 422 of the Internal Revenue Code.
SECTION 16.
NO OBLIGATION TO EXERCISE OPTION
The granting of an option shall impose no obligation upon the Optionee
to exercise such option. Further, the granting of an option hereunder
shall not impose upon the Company or any Subsidiary any obligation to
retain the Optionee in its employ for any period.
INCENTIVE STOCK OPTION AGREEMENT
EAGLE PACIFIC INDUSTRIES, INC.
1997 STOCK OPTION PLAN
PARTIES: Eagle Pacific Industries, Inc. ("COMPANY")
2430 Metropolitan Centre
333 South Seventh Street
Minneapolis, Minnesota 55402
("OPTIONEE")
_____________________________
_____________________________
_____________________________
DATE: December 31, 1996
RECITALS:
A. The Company's Board of Directors (the "Board") has adopted a
stock option plan providing for the grant of stock options known as the "Eagle
Pacific Industries, Inc. 1997 Stock Option Plan" (the "Plan"). The Plan will be
submitted to the Company's shareholders for approval at the next annual
shareholder's meeting or, if earlier, within twelve (12) months of the Board's
adoption of the Plan. The capitalized terms not otherwise defined herein shall
have the meanings ascribed to them in the Plan.
B. Optionee is an employee of the Company or one of its
subsidiaries.
C. This Incentive Stock Option Agreement is being entered into
pursuant to the terms of the Plan.
AGREEMENT:
The parties hereto, each intending to be legally bound, agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee, on
the date of this Agreement, the option to purchase ________ shares of Common
Stock of the Company (the "Option Stock") subject to the terms and conditions
herein contained, and subject only to adjustment in such number of shares as
provided in Section 12 of the Plan. This option is intended to be an incentive
stock option within the meaning of Section 422, or any successor provision, of
the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
thereunder; provided, however, that if the Company's shareholders do not approve
the Plan within twelve (12) months of the date the Plan was adopted by the
Board, this option shall be treated as a nonqualified stock option.
2. Option Price. During the term of this option, the purchase
price for the shares of Option Stock granted herein is $2.75 per share, subject
only to adjustment of such price as provided in Section 12 of the Plan.
3. Term of Option. Unless terminated earlier under the provisions
of Sections 10 or 11 of this Agreement or under Sections 12 or 13 of the Plan,
this option shall terminate as of the close of business on December 30, 2006.
This option shall not be exercisable until July 1, 1997. During the period from
July 1, 1997, through December 30, 1997, this option shall be exercisable to the
extent of twenty-five percent (25%) of the Option Stock. Thereafter, this option
shall be exercisable to the extent of an additional twenty-five percent (25%) of
the Option Stock on each anniversary of the date hereof until the earlier of the
date on which this option shall have become exercisable to the extent of one
hundred percent (100%) of the Option Stock or the date the option terminates as
provided herein. Once the option becomes exercisable to the extent of one
hundred percent (100%) of the Option Stock, Optionee may continue to exercise
this option under the terms and conditions of this Agreement until the
termination of the option as provided herein. If Optionee does not purchase upon
an exercise of this option the full number of shares which Optionee is then
entitled to purchase, Optionee may purchase upon any subsequent exercise prior
to this option's termination such previously unpurchased shares in addition to
those Optionee is otherwise entitled to purchase.
4. Personal Exercise by Optionee. This option shall, during the
lifetime of the Optionee, be exercisable only by said Optionee and shall not be
transferable by the Optionee, in whole or in part, other than by will or by the
laws of descent and distribution.
5. Manner of Exercise of Option.
a. This option may be exercised by the Optionee (or by the
Optionee's successor or successors) by giving written notice to the Company of
an election to exercise such option. Such notice shall specify the number of
shares to be purchased hereunder and shall specify a date (not more than 30
calendar days from the date of delivery of the notice to the Company) on which
the Optionee shall deliver payment of the full purchase price for the shares
being purchased. Such notice shall be delivered to the Company at its principal
place of business. The option shall be deemed exercised at the time the Company
receives such notice. The option may be exercised with respect to any number or
all of the shares as to which it can then be exercised and, if partially
exercised, may be so exercised as to the unexercised shares any number of times
during the option period as provided herein.
b. Subject to approval by the Administrator, payment of the
option price by Optionee shall be in the form of cash, personal check, certified
check or previously acquired shares of Common Stock of the Company, or any
combination thereof. Any stock so tendered as part of such payment shall be
valued at its Fair Market Value as provided in the Plan. For purposes of this
Agreement, "previously acquired shares of Common Stock" shall include shares of
Common Stock that are already owned by Optionee at the time of exercise.
As soon as practicable after the effective exercise of all or
any part of the option, Optionee shall be recorded on the stock transfer books
of the Company as the owner of the shares purchased, and the Company shall
deliver to Optionee one or more duly issued stock certificates evidencing such
ownership. All requisite original issue or transfer documentary stamp taxes
shall be paid by the Company.
6. Rights as a Shareholder. The Optionee (or Optionee's successor
or successors) shall have no rights as a shareholder with respect to any shares
covered by this option until the date of the issuance of a stock certificate for
such shares. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property), distributions or
other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 12 of the Plan.
7. Employment. This Agreement shall not confer on Optionee any
right with respect to continuance of employment by the Company or any of its
Subsidiaries, nor will it interfere in any way with the right of the Company to
terminate such employment, it being acknowledged and agreed that Optionee is an
employee at will of the Company.
8. Stock Option Plan. This option is granted pursuant to the
Plan, a copy of which has been made available to the Optionee and is hereby made
a part of this Agreement. This Agreement is subject to and in all respects
limited and conditioned as provided in the Plan. The Plan governs this option
and the Optionee, and in the event of any question as to the construction of
this Agreement or of a conflict between the Plan and this Agreement, the Plan
shall govern, except as the Plan otherwise provides.
9. Withholding Taxes on Disqualifying Disposition. In the event
of a disqualifying disposition of the shares acquired through the exercise of
this option, Optionee hereby agrees to inform the Company of such disposition.
Upon notice of a disqualifying disposition, the Company may take such action as
it deems appropriate to insure that, if necessary to comply with all applicable
federal or state income tax laws or regulations, all applicable federal and
state payroll, income or other taxes are withheld from any amounts payable by
the Company to Optionee. If the Company is unable to withhold such federal and
state taxes, for whatever reason, Optionee hereby agrees to pay to the Company
an amount equal to the amount the Company would otherwise be required to
withhold under federal or state law. Optionee may, subject to the approval and
discretion of the Administrator or such administrative rules it may deem
advisable, elect to have all or a portion of such tax withholding obligations
satisfied by delivering shares of the Company's Common Stock having a fair
market value equal to such obligations.
10. Termination of Employment. If Optionee ceases to be an
employee of the Company or any Subsidiary for any reason, other than because of
death or disability, this option shall completely terminate on the earlier of
(i) the close of business 30 days after the date of such termination of
employment, and (ii) the expiration date of this option stated in Section 3
above. In such period following such termination of employment, this option
shall be exercisable only to the extent the option was exercisable on the date
of Optionee's termination of employment, but had not previously been exercised.
To the extent this option was not exercisable upon the date of such termination
of employment, or if Optionee does not exercise the option within the time
specified in this Section 10, all rights of Optionee under this option shall be
forfeited.
11. Death or Disability of Optionee. If the Optionee dies or
ceases to be an employee of the Company or any Subsidiary due to disability (as
such term is defined in Code Section 22(e)(3), or any successor provision), this
option shall terminate on the earlier of (i) the close of business six months
after the date of the Optionee's death or termination of employment, and (ii)
the expiration date of this option stated in Section 3 above. In such period
following the date of Optionee's termination of employment or death, this option
may be exercised by the Optionee, or by the person or persons to whom the
Optionee's rights under this option shall have passed by the Optionee's will or
by the laws of descent and distribution, only to the extent the option was
exercisable on such date but had not previously been exercised. To the extent
this option was not exercisable upon the date of Optionee's termination of
employment or death, or if the option is not exercised within the time specified
in this Section 11, all rights of Optionee under this option shall be forfeited.
12. Recapitalizations, Sales, Mergers, Exchanges, Consolidations,
Liquidation. Pursuant to Section 12 of the Plan, certain changes in the number
or character of the Company's Common Stock (through sale, merger, consolidation,
exchange, reorganization, divestiture, liquidation, recapitalization, stock
split, stock dividend or similar transactions), shall result in an adjustment to
the number of shares of Option Stock and the option exercise price with respect
to the unexercised portion of this option. Similarly, in the event of a sale,
merger, consolidation, exchange, reorganization, divestiture, liquidation or
similar transaction, this option shall be adjusted as provided in Section 12 of
the Plan.
13. Shares Reserved. The Company shall at all times during the
term of this option reserve and keep available such number of shares as will be
sufficient to satisfy the requirements of this Agreement.
14. Securities Law Compliance. The exercise of all or any parts of
this option shall only be effective at such time as counsel to the Company shall
have determined that the issuance and delivery of Common Stock pursuant to such
exercise will not violate any state or federal securities or other laws.
Optionee may be required by the Company, as a condition of the effectiveness of
any exercise of this option, to agree in writing that all Common Stock to be
acquired pursuant to such exercise shall be held, until such time that such
Common Stock is registered and freely tradable under applicable state and
federal securities laws, for Optionee's own account without a view to any
further distribution thereof, that the certificates for such shares shall bear
an appropriate legend to that effect and that such shares will be not
transferred or disposed of except in compliance with applicable state and
federal securities laws.
15. Lockup Period Limitation. Optionee agrees that in the event
the Company advises Optionee that it plans an underwritten public offering of
its Common Stock in compliance with the Securities Act of 1933, as amended, and
that the underwriter(s) seek to impose restrictions under which certain
shareholders may not sell or contract to sell or grant any option to buy or
otherwise dispose of part or all of their stock purchase rights of the
underlying Common Stock, Optionee hereby agrees that for a period not to exceed
180 days from the prospectus, Optionee will not sell or contract to sell or
grant an option to buy or otherwise dispose of this option or any of the
underlying shares of Common Stock without the prior written consent of the
underwriter(s) or its representative(s).
16. Blue Sky Limitation. Notwithstanding anything in this
Agreement to the contrary, in the event the Company makes any public offering of
its securities and determines in its sole discretion that it is necessary to
reduce the number of issued but unexercised stock purchase rights so as to
comply with any state securities or Blue Sky law limitations with respect
thereto, the Board of Directors of the Company shall have the right (i) to
accelerate the exercisability of this option and the date on which this option
must be exercised, provided that the Company gives Optionee 15 days' prior
written notice of such acceleration, and (ii) to cancel any portion of this
option or any other option granted to Optionee pursuant to the Plan which is not
exercised prior to or contemporaneously with such public offering. Notice shall
be deemed given when delivered personally or when deposited in the United States
mail, first class postage prepaid and addressed to Optionee at the address of
Optionee on file with the Company.
17. Accounting Compliance. Optionee agrees that, in the event a
"change of control transaction" (as defined in Paragraph 4(g) above) is treated
as a "pooling of interests" under generally accepted accounting principles and
Optionee is an "affiliate" of the Company or any Subsidiary (as defined in
applicable legal and accounting principles) at the time of such change of
control transaction, Optionee will comply with all requirements of Rule 145 of
the Securities Act of 1933, as amended, and the requirements of such other legal
or accounting principles, and will execute any documents necessary to ensure
such compliance.
18. Stock Legend. The certificates for any shares of Common Stock
purchased by Optionee (or, in the case of death, Optionee's successors) shall
bear an appropriate legend to reflect the restrictions of Sections 14, 15, 16
and 17 of this Agreement.
19. Arbitration. Any dispute arising out of or relating to this
Agreement or the alleged breach of it, or the making of this Agreement,
including claims of fraud in the inducement, shall be discussed between the
disputing parties in a good faith effort to arrive at a mutual settlement of any
such controversy. If, notwithstanding, such dispute cannot be resolved, such
dispute shall be settled by binding arbitration. Judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitrator shall be a retired state or federal judge or an attorney
who has practiced securities or business litigation for at least 10 years. If
the parties cannot agree on an arbitrator within 20 days, any party may request
that the chief judge of the District Court for Hennepin County, Minnesota,
select an arbitrator. Arbitration will be conducted pursuant to the provisions
of this Agreement, and the commercial arbitration rules of the American
Arbitration Association, unless such rules are inconsistent with the provisions
of this Agreement. Limited civil discovery shall be permitted for the production
of documents and taking of depositions. Unresolved discovery disputes may be
brought to the attention of the arbitrator who may dispose of such dispute. The
arbitrator shall have the authority to award any remedy or relief that a court
of this state could order or grant; provided, however, that punitive or
exemplary damages shall not be awarded. The arbitrator may award to the
prevailing party, if any, as determined by the arbitrator, all of its costs and
fees, including the arbitrator's fees, administrative fees, travel expenses,
out-of-pocket expenses and reasonable attorneys' fees. Unless otherwise agreed
by the parties, the place of any arbitration proceedings shall be Hennepin
County, Minnesota.
20. Scope of Agreement. This Agreement shall bind and inure to the
benefit of the Company and its successors and assigns and the Optionee and any
successor or successors of the Optionee permitted by Section 4 above.
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Agreement in the manner appropriate to each, as of the day and year first above
written.
"COMPANY"
EAGLE PACIFIC INDUSTRIES, INC.
By:______________________________________
Its:______________________________
"OPTIONEE"
_________________________________________
NONQUALIFIED STOCK OPTION AGREEMENT
EAGLE PACIFIC INDUSTRIES, INC.
1997 STOCK OPTION PLAN
PARTIES: Eagle Pacific Industries, Inc. ("COMPANY")
2430 Metropolitan Centre
333 South Seventh Street
Minneapolis, Minnesota 55402
("OPTIONEE")
______________________________
______________________________
______________________________
DATE: ______________________________
RECITALS:
A. The Company's Board of Directors (the "Board") has adopted a
stock option plan providing for the grant of stock options known as the "Eagle
Pacific Industries, Inc. 1997 Stock Option Plan" (the "Plan"). THE PLAN WILL BE
SUBMITTED TO THE COMPANY'S SHAREHOLDERS FOR APPROVAL AT THE NEXT ANNUAL
SHAREHOLDER'S MEETING OR, IF EARLIER, WITHIN TWELVE (12) MONTHS OF THE BOARD'S
ADOPTION OF THE PLAN. The capitalized terms not otherwise defined herein shall
have the meanings ascribed to them in the Plan.
B. Optionee is an employee, consultant or director of or an
advisor to the Company or one of its Subsidiaries.
C. This Nonqualified Stock Option Agreement is being entered into
pursuant to the terms of the Plan.
AGREEMENT:
The parties hereto, each intending to be legally bound, agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee, on
the date of this Agreement, the option to purchase ___________ shares of Common
Stock of the Company (the "Option Stock") subject to the terms and conditions
herein contained, and subject only to adjustment in such number of shares as
provided in Section 12 of the Plan. This option is not intended to be an
incentive stock option within the meaning of Section 422, or any successor
provision, of the Internal Revenue Code of 1986, as amended (the "Code"), and
the regulations thereunder.
2. Option Price. During the term of this option, the purchase
price for the shares of Option Stock granted herein is $_________ per share,
subject only to adjustment of such price as provided in Section 12 of the Plan.
3. Term of Option. Unless terminated earlier under the provisions
of Sections 10 or 11 of this Agreement or under Sections 12 or 13 of the Plan,
this option shall terminate as of the close of business on _____________. This
option shall not be exercisable until _______________. During the period
from______________ through _______________, this option shall be exercisable to
the extent of _____ percent (___%) of the Option Stock. Thereafter, this option
shall be exercisable to the extent of an additional ____ percent (___%) of the
Option Stock on each anniversary of the date hereof until the earlier of the
date on which this option shall have become exercisable to the extent of one
hundred percent (100%) of the Option Stock or the date the option terminates as
provided herein. Once the option becomes exercisable to the extent of one
hundred percent (100%) of the Option Stock, Optionee may continue to exercise
this option under the terms and conditions of this Agreement until the
termination of the option as provided herein. If Optionee does not purchase upon
an exercise of this option the full number of shares which Optionee is then
entitled to purchase, Optionee may purchase upon any subsequent exercise prior
to this option's termination such previously unpurchased shares in addition to
those Optionee is otherwise entitled to purchase.
4. Personal Exercise by Optionee. This option shall, during the
lifetime of the Optionee, be exercisable only by said Optionee and shall not be
transferable by the Optionee, in whole or in part, other than by will or by the
laws of descent and distribution.
5. Manner of Exercise of Option.
a. This option may be exercised by the Optionee (or by the
Optionee's successor or successors) by giving written notice to the Company of
an election to exercise such option. Such notice shall specify the number of
shares to be purchased hereunder and shall specify a date (not more than 30
calendar days from the date of delivery of the notice to the Company) on which
the Optionee shall deliver payment of the full purchase price for the shares
being purchased. Such notice shall be delivered to the Company at its principal
place of business. The option shall be deemed exercised at the time the Company
receives such notice. The option may be exercised with respect to any number or
all of the shares as to which it can then be exercised and, if partially
exercised, may be so exercised as to the unexercised shares any number of times
during the option period as provided herein.
b. Subject to approval by the Administrator, payment of the
option price by Optionee shall be in the form of cash, personal check, certified
check or previously acquired shares of Common Stock of the Company, or any
combination thereof. Any stock so tendered as part of such payment shall be
valued at its Fair Market Value as provided in the Plan. For purposes of this
Agreement, "previously acquired shares of Common Stock" shall include shares of
Common Stock that are already owned by Optionee at the time of exercise.
As soon as practicable after the effective exercise of all or
any part of the option, Optionee shall be recorded on the stock transfer books
of the Company as the owner of the shares purchased, and the Company shall
deliver to Optionee one or more duly issued stock certificates evidencing such
ownership. All requisite original issue or transfer documentary stamp taxes
shall be paid by the Company.
6. Rights as a Shareholder. The Optionee (or Optionee's successor
or successors) shall have no rights as a shareholder with respect to any shares
covered by this option until the date of the issuance of a stock certificate for
such shares. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property), distributions or
other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 12 of the Plan.
7. Employment. This Agreement shall not confer on Optionee any
right with respect to continuance of employment by the Company or any of its
Subsidiaries, nor will it interfere in any way with the right of the Company to
terminate such employment, it being acknowledged and agreed that Optionee is an
employee at will of the Company.
8. Stock Option Plan. This option is granted pursuant to the
Plan, a copy of which has been made available to the Optionee and is hereby made
a part of this Agreement. This Agreement is subject to and in all respects
limited and conditioned as provided in the Plan. The Plan governs this option
and the Optionee, and in the event of any question as to the construction of
this Agreement or of a conflict between the Plan and this Agreement, the Plan
shall govern, except as the Plan otherwise provides.
9. Withholding Taxes. Upon an exercise of this option, the
Company may take such action as it deems appropriate to insure that, if
necessary to comply with all applicable federal or state income tax laws or
regulations, all applicable federal and state payroll, income or other taxes are
withheld from any amounts payable by the Company to Optionee. If the Company is
unable to withhold such federal and state taxes, for whatever reason, Optionee
hereby agrees to pay to the Company an amount equal to the amount the Company
would otherwise be required to withhold under federal or state law. Optionee
may, subject to the approval and discretion of the Administrator or such
administrative rules it may deem advisable, elect to have all or a portion of
such tax withholding obligations satisfied by delivering shares of the Company's
Common Stock having a fair market value equal to such obligations.
10. Termination of Employment. If Optionee ceases to be an
employee of the Company or any Subsidiary for any reason, other than because of
death or disability, this option shall completely terminate on the earlier of
(i) the close of business ______days after the date of such termination of
employment, and (ii) the expiration date of this option stated in Section 3
above. In such period following such termination of employment, this option
shall be exercisable only to the extent the option was exercisable on the date
of Optionee's termination of employment, but had not previously been exercised.
To the extent this option was not exercisable upon the date of such termination
of employment, or if Optionee does not exercise the option within the time
specified in this Section 10, all rights of Optionee under this option shall be
forfeited.
11. Death or Disability of Optionee. If the Optionee dies or
ceases to be an employee of the Company or any Subsidiary due to disability (as
such term is defined in Code Section 22(e)(3), or any successor provision), this
option shall terminate on the earlier of (i) the close of business ________
months after the date of the Optionee's death or termination of employment, and
(ii) the expiration date of this option stated in Section 3 above. In such
period following the date of Optionee's termination of employment or death, this
option may be exercised by the Optionee, or by the person or persons to whom the
Optionee's rights under this option shall have passed by the Optionee's will or
by the laws of descent and distribution, only to the extent the option was
exercisable on such date but had not previously been exercised. To the extent
this option was not exercisable upon the date of Optionee's termination of
employment or death, or if the option is not exercised within the time specified
in this Section 11, all rights of Optionee under this option shall be forfeited.
12. Recapitalizations, Sales, Mergers, Exchanges, Consolidations,
Liquidation. Pursuant to Section 12 of the Plan, certain changes in the number
or character of the Company's Common Stock (through sale, merger, consolidation,
exchange, reorganization, divestiture, liquidation, recapitalization, stock
split, stock dividend or similar transactions), shall result in an adjustment to
the number of shares of Option Stock and the option exercise price with respect
to the unexercised portion of this option. Similarly, in the event of a sale,
merger, consolidation, exchange, reorganization, divestiture, liquidation or
similar transaction, this option shall be adjusted as provided in Section 12 of
the Plan.
13. Shares Reserved. The Company shall at all times during the
term of this option reserve and keep available such number of shares as will be
sufficient to satisfy the requirements of this Agreement.
14. Securities Law Compliance. The exercise of all or any parts of
this option shall only be effective at such time as counsel to the Company shall
have determined that the issuance and delivery of Common Stock pursuant to such
exercise will not violate any state or federal securities or other laws.
Optionee may be required by the Company, as a condition of the effectiveness of
any exercise of this option, to agree in writing that all Common Stock to be
acquired pursuant to such exercise shall be held, until such time that such
Common Stock is registered and freely tradable under applicable state and
federal securities laws, for Optionee's own account without a view to any
further distribution thereof, that the certificates for such shares shall bear
an appropriate legend to that effect and that such shares will be not
transferred or disposed of except in compliance with applicable state and
federal securities laws.
15. Lockup Period Limitation. Optionee agrees that in the event
the Company advises Optionee that it plans an underwritten public offering of
its Common Stock in compliance with the Securities Act of 1933, as amended, and
that the underwriter(s) seek to impose restrictions under which certain
shareholders may not sell or contract to sell or grant any option to buy or
otherwise dispose of part or all of their stock purchase rights of the
underlying Common Stock, Optionee hereby agrees that for a period not to exceed
180 days from the prospectus, Optionee will not sell or contract to sell or
grant an option to buy or otherwise dispose of this option or any of the
underlying shares of Common Stock without the prior written consent of the
underwriter(s) or its representative(s).
16. Blue Sky Limitation. Notwithstanding anything in this
Agreement to the contrary, in the event the Company makes any public offering of
its securities and determines in its sole discretion that it is necessary to
reduce the number of issued but unexercised stock purchase rights so as to
comply with any state securities or Blue Sky law limitations with respect
thereto, the Board of Directors of the Company shall have the right (i) to
accelerate the exercisability of this option and the date on which this option
must be exercised, provided that the Company gives Optionee 15 days' prior
written notice of such acceleration, and (ii) to cancel any portion of this
option or any other option granted to Optionee pursuant to the Plan which is not
exercised prior to or contemporaneously with such public offering. Notice shall
be deemed given when delivered personally or when deposited in the United States
mail, first class postage prepaid and addressed to Optionee at the address of
Optionee on file with the Company.
17. Accounting Compliance. Optionee agrees that, in the event a
"change of control transaction" (as defined in Paragraph 4(g) above) is treated
as a "pooling of interests" under generally accepted accounting principles and
Optionee is an "affiliate" of the Company or any Subsidiary (as defined in
applicable legal and accounting principles) at the time of such change of
control transaction, Optionee will comply with all requirements of Rule 145 of
the Securities Act of 1933, as amended, and the requirements of such other legal
or accounting principles, and will execute any documents necessary to ensure
such compliance.
18. Stock Legend. The certificates for any shares of Common Stock
purchased by Optionee (or, in the case of death, Optionee's successors) shall
bear an appropriate legend to reflect the restrictions of Sections 14, 15, 16
and 17 of this Agreement.
19. Arbitration. Any dispute arising out of or relating to this
Agreement or the alleged breach of it, or the making of this Agreement,
including claims of fraud in the inducement, shall be discussed between the
disputing parties in a good faith effort to arrive at a mutual settlement of any
such controversy. If, notwithstanding, such dispute cannot be resolved, such
dispute shall be settled by binding arbitration. Judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitrator shall be a retired state or federal judge or an attorney
who has practiced securities or business litigation for at least 10 years. If
the parties cannot agree on an arbitrator within 20 days, any party may request
that the chief judge of the District Court for Hennepin County, Minnesota,
select an arbitrator. Arbitration will be conducted pursuant to the provisions
of this Agreement, and the commercial arbitration rules of the American
Arbitration Association, unless such rules are inconsistent with the provisions
of this Agreement. Limited civil discovery shall be permitted for the production
of documents and taking of depositions. Unresolved discovery disputes may be
brought to the attention of the arbitrator who may dispose of such dispute. The
arbitrator shall have the authority to award any remedy or relief that a court
of this state could order or grant; provided, however, that punitive or
exemplary damages shall not be awarded. The arbitrator may award to the
prevailing party, if any, as determined by the arbitrator, all of its costs and
fees, including the arbitrator's fees, administrative fees, travel expenses,
out-of-pocket expenses and reasonable attorneys' fees. Unless otherwise agreed
by the parties, the place of any arbitration proceedings shall be Hennepin
County, Minnesota.
20. Scope of Agreement. This Agreement shall bind and inure to the
benefit of the Company and its successors and assigns and the Optionee and any
successor or successors of the Optionee permitted by Section 4 above.
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Agreement in the manner appropriate to each, as of the day and year first above
written.
"COMPANY"
EAGLE PACIFIC INDUSTRIES, INC.
By:______________________________________
Its:______________________________
"OPTIONEE"
_________________________________________
EXHIBIT 10.15
05/08/96
LOAN AND SECURITY AGREEMENT
DATED: MAY 10, 1996
$24,500,000
BY AND BETWEEN
FLEET CAPITAL CORPORATION,
AS LENDER
AND
EAGLE PLASTICS, INC.,
PACIFIC PLASTICS, INC.,
AND
ARROW PACIFIC PLASTICS, INC.
AS BORROWERS
WITH
EAGLE PACIFIC INDUSTRIES, INC.,
AS GUARANTOR
TABLE OF CONTENTS PAGE
----------------- ----
SECTION 1. CREDIT FACILITY.................................................. 1
1.1 Revolving Credit Loans.................................. 1
1.2 Term Loan............................................... 2
SECTION 2. INTEREST, FEES AND CHARGES....................................... 2
2.1 Interest................................................ 2
2.2 Computation of Interest and Fees........................ 5
2.3 Closing Fee............................................. 5
2.4 Unused Line Fee......................................... 5
2.5 Collection Charges...................................... 5
2.6 Audit and Appraisal Fees................................ 5
2.7 Reimbursement of Expenses............................... 5
2.8 Bank Charges............................................ 6
SECTION 3. LOAN ADMINISTRATION.............................................. 6
3.1 Manner of Borrowing Revolving Credit Loans.............. 6
3.2 Payments................................................ 7
3.3 Mandatory Prepayments................................... 8
3.4 Application of Payments and Collections................. 8
3.5 All Loans to Constitute One Obligation.................. 9
3.6 Loan Account............................................ 9
3.7 Statements of Account................................... 9
SECTION 4. TERM AND TERMINATION.............................................. 9
4.1 Term of Agreement....................................... 9
4.2 Termination............................................. 9
SECTION 5. SECURITY INTERESTS...............................................11
5.1 Security Interest in Collateral.........................11
5.2 Lien Perfection; Further Assurances.....................11
5.3 Lien on Realty..........................................12
SECTION 6. COLLATERAL ADMINISTRATION........................................12
6.1 General.................................................12
6.2 Administration of Accounts..............................13
6.3 Administration of Inventory.............................15
6.4 Administration of Equipment.............................15
6.5 Payment of Charges......................................16
SECTION 7. REPRESENTATIONS AND WARRANTIES...................................16
7.1 General Representations and Warranties..................16
7.2 Continuous Nature of Representations and Warranties.....22
7.3 Survival of Representations and Warranties..............22
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS..............................22
8.1 Affirmative Covenants...................................22
8.2 Negative Covenants......................................24
8.3 Specific Financial Covenants............................29
SECTION 9. CONDITIONS PRECEDENT.............................................31
9.1 Documentation...........................................32
9.2 No Default..............................................32
9.3 Other Loan Documents....................................32
9.4 Equity..................................................32
9.5 Subordinated Debt.......................................32
9.6 Availability............................................32
9.7 No Litigation...........................................32
9.8 Net Operating Carry Forward.............................32
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT...............33
10.1 Events of Default.......................................33
10.2 Acceleration of the Obligations.........................35
10.3 Other Remedies..........................................35
10.4 Remedies Cumulative; No Waiver..........................36
SECTION 11. MISCELLANEOUS...................................................37
11.1 Power of Attorney.......................................37
11.2 Indemnity...............................................38
11.3 Modification of Agreement; Sale of Interest.............38
11.4 Severability............................................38
11.5 Successors and Assigns..................................39
11.6 Cumulative Effect; Conflict of Terms....................39
11.7 Execution in Counterparts...............................39
11.8 Notice..................................................39
11.9 Lender's Consent........................................40
11.10 Credit Inquiries........................................40
11.11 Time of Essence.........................................40
11.12 Entire Agreement........................................40
11.13 Interpretation..........................................41
11.14 GOVERNING LAW; CONSENT TO FORUM.........................41
11.15 WAIVERS BY BORROWER.....................................42
11.16 Publicity...............................................42
11.17 Reimbursement...........................................42
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is made this 10th day of May 1996, by
and between FLEET CAPITAL CORPORATION ("Lender"), a Rhode Island
corporation with an office at 200 West Madison Street, Chicago,
Illinois 60606; and EAGLE PLASTICS, INC. ("EPI"), a Nebraska
corporation with its chief executive office and principal place of
business at 146 North Maple Street, Hastings, Nebraska 68902 and
PACIFIC PLASTICS, INC. ("PPI"), an Oregon corporation with its chief
executive office and principal place of business at 21500 Northwest
Plastics Drive, Hillsboro, Oregon 97124 and ARROW PACIFIC PLASTICS
("APP"), a Utah corporation with its chief executive office and
principal place of business at 44 East 8th Avenue, Midvale, Utah 84047.
EPI, PPI and APP are hereinafter sometimes referred to individually as
"Borrower" and collectively as "Borrowers." Capitalized terms used in
this Agreement have the meanings assigned to them in Appendix A,
General Definitions. Accounting terms not otherwise specifically
defined herein shall be construed in accordance with GAAP consistently
applied.
SECTION 1. CREDIT FACILITY
Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement and the other
Loan Documents, Lender agrees to make a Total Credit Facility of up to
Twenty-Four Million Five Hundred Thousand Dollars ($24,500,000)
available upon Borrowers' request therefor, as follows:
1.1 Revolving Credit Loans.
1.1.1 Loans and Reserves. Lender agrees, for so long
as no Default or Event of Default exists, to make Revolving
Credit Loans to EPI from time to time, as requested by EPI in
the manner set forth in subsection 3.1.1 hereof, up to a
maximum principal amount at any time outstanding equal to the
EPI Borrowing Base at such time. Lender agrees, for so long as
no Default or Event of Default exists, to make Revolving
Credit Loans to PPI from time to time, as requested by PPI in
the manner set forth in Section 3.1.1 hereof, up to a maximum
principal amount at any time outstanding equal to the PPI
Borrowing Base at such time. Lender agrees, for so long as no
Default or Event of Default exists, to make Revolving Credit
Loans to APP from time to time, as requested by APP in the
manner set forth in subsection 3.1.1 hereof up to a maximum
principal amount at any time outstanding equal to the APP
Borrowing Base at such time. Lender shall have the right to
establish reserves in such amounts, and with respect to such
matters, as Lender shall deem necessary or appropriate,
against the amount of Revolving Credit Loans which Borrowers
may otherwise request under this subsection 1.1.1, including,
without limitation, with respect to (i) other sums chargeable
against Borrowers' Loan Account as Revolving Credit Loans
under any section of this Agreement; (ii) amounts owing by any
Borrower to any Person to the extent secured by a Lien on, or
trust over, any Property of any Borrower and Borrowers have
not already established funded reserves over which Lender has
a security interest; and (iii) such other matters, events,
conditions or contingencies as to which Lender, in its sole
credit judgment, determines reserves should be established
from time to time hereunder.
1.1.2 Use of Proceeds. The Revolving Credit Loans
shall be used solely for the satisfaction of existing
Indebtedness of EPI to FirsTier Bank, National Association,
for the satisfaction of existing Indebtedness of PPI and/or
APP to Bank of America Oregon, for the purpose of paying
transaction costs related to this transaction in an amount not
to exceed $700,000, for the purpose of paying a dividend to
Company to permit Company to repay a portion of its
Indebtedness for Money Borrowed owed to Blair, to permit
Company to purchase shares of stock of EPI and to permit
Company to pay professional fees, and for Borrowers' general
operating capital needs in a manner consistent with the
provisions of this Agreement and all applicable laws.
1.2 Term Loan.
1.2.1 Term Loan. Lender agrees to make (i) a term
loan to EPI on the Closing Date in the principal amount of
Three Million Two Hundred Seventy-Five Thousand Dollars
($3,275,000) which shall be repayable in accordance with the
terms hereof and the terms of the EPI Term Note and shall be
secured by all of the Collateral, (ii) a term loan to PPI on
the Closing Date in the principal amount of Three Million
Seven Hundred Seventy-Five Thousand Dollars ($3,775,000) which
shall be repayable in accordance with the terms hereof and the
PPI Term Note and shall be secured by all of the Collateral,
and (iii) a term loan to APP on the Closing Date in the
principal amount of Nine Hundred Fifty Thousand Dollars
($950,000) which shall be repayable in accordance with the
terms hereof and the APP Term Note and shall be secured by all
of the Collateral. The proceeds of the EPI Term Loan, the PPI
Term Loan and the APP Term Loan shall be used solely for
purposes for which the proceeds of the Revolving Credit Loans
are authorized to be used.
SECTION 2. INTEREST, FEES AND CHARGES
2.1 Interest.
2.1.1 Rates of Interest.
(A) Interest. (i) Interest shall accrue on the Prime
Portion outstanding at the end of each day (computed
on the basis of a calendar year of 360 days and
actual days elapsed) at a fluctuating rate per annum
equal to the sum of one-quarter of one percent (1/4%)
plus the Base Rate. After the date hereof, the
foregoing rate of interest shall be increased or
decreased, as the case may be, by an amount equal to
any increase or decrease in the Base Rate, with such
adjustments to be effective as of the opening of
business on the day that any such change in the Base
Rate becomes effective. The Base Rate in effect on
the date hereof shall be the Base Rate effective on
the opening of business on the date hereof, but if
this Agreement is executed on a day that is not a
Business Day, the Base Rate in effect on the date
hereof shall be the Base Rate effective as of the
opening of business on the last Business Day
immediately preceding the date hereof.
(ii) Interest shall accrue on each LIBOR
Revolving Loan Portion outstanding at the
end of each day (computed on the basis of a
calendar year of 360 days and actual days
elapsed) at rates equal to the sum of the
LIBOR Rate applicable to each such LIBOR
Revolving Loan Portion plus two and one-half
percent (2 1/2%).
(iii) Interest shall accrue on each LIBOR
Term Portion outstanding at the end of each
day (computed on the basis of a calendar
year of 360 days and actual days elapsed) at
rates equal to the sum of the LIBOR Rate
applicable to each such LIBOR Term Portion
plus two and three-quarters percent (2
3/4%).
(B) LIBOR Option.
(i) Conditions for Basing Interest on the
LIBOR Rate. Upon the condition that:
(a) Lender shall have received a LIBOR
Request from EPI (in respect to the Term Loan and
Revolving Credit Loan made to EPI) or PPI (in respect
to Revolving Credit Loans made to PPI and APP) at
least 3 Business Days prior to the first day of the
LIBOR Period requested:
(_)(b) There shall have occurred no change
in applicable law which would make it unlawful for
Lender to obtain deposits of U.S. dollars in the
London interbank foreign currency deposits market;
(c) As of the date of the LIBOR Request and
the first day of the LIBOR Period, there shall exist
no Default or Event of Default which has not been
waived by Lender; and
(d) Lender shall have determined in good
faith that it is able to determine the LIBOR Rate in
respect of the requested LIBOR Period and that Lender
is able to obtain deposits of U.S. dollars in the
London interbank foreign currency deposits market in
the applicable amounts and for the requested LIBOR
Period;
then interest on the LIBOR Portion requested during the LIBOR Period
requested will be based on the applicable LIBOR Rate. The foregoing
notwithstanding, Borrowers acknowledge that there may not be more than
three LIBOR Portions outstanding at any one time.
(ii) Indemnification for Funding and Other Losses.
Each LIBOR Request shall be irrevocable and binding on Borrowers.
Borrowers shall indemnify Lender against any expense or loss suffered
by Lender as a result of any failure on the part of Borrowers to
fulfill, on or before the date specified in any LIBOR Request, the
applicable conditions set forth in this Agreement or as a result of the
prepayment of the applicable LIBOR Portion prior to the last day of the
applicable LIBOR Period, including, without limitation, any loss
(including loss of anticipated profits) or expense incurred by reason
of the liquidation or redeployment of deposits or other funds acquired
by Lender to fund or maintain the requested LIBOR Portion, when, as a
result of such failure on the part of Borrowers or prepayment by
Borrowers, interest on such LIBOR Portion is not based on the
applicable LIBOR Rate for the requested LIBOR Period.
(iii) Change in Applicable Laws, Regulations, etc. If
any Legal Requirement shall make it unlawful for Lender to fund through
the purchase of U.S. dollar deposits any LIBOR Portion, or otherwise to
give effect to its obligations as contemplated under this Section
2.1.1(B), or shall impose on Lender any costs based on or measured by
the excess above a specified level of the amount of a category of
deposits or other liabilities of Lender which includes deposits by
reference to which the LIBOR Rate is determined as provided herein or a
category of extensions of credit or other assets of Lender which
includes any LIBOR Portion, or shall impose on Lender any restrictions
on the amount of such a category of liabilities or assets which Lender
may hold, (i) Lender may by notice thereof to Borrowers terminate the
LIBOR Option, with respect to the Term Loan and the Revolving Credit
Loans made or to be made by Lender, (ii) any LIBOR Portion subject
thereto shall immediately bear interest thereafter at the rate provided
for in Section 2.1.1(A) payable on the dates provided for in Section
3.2.2 and (iii) Borrowers shall indemnify Lender against any
out-of-pocket loss, penalty or expense incurred by Lender by reason of
the liquidation or redeployment of deposits or other funds acquired by
Lender to fund or maintain such LIBOR Portion.
(iv) Taxes. It is the understanding of Borrowers and
Lender that Lender shall receive payments of amounts of principal of
and interest on the Revolving Credit Loans and the Term Loan with
respect to the LIBOR Portions from time to time subject to a LIBOR
Option free and clear of, and without deduction for, any Taxes. If (i)
Lender shall be subject to any such Tax in respect of any such LIBOR
Portion or any part thereof or (ii) Borrowers shall be required to
withhold or deduct any such Tax from any such amount, the LIBOR Rate
applicable to such LIBOR Portion shall be adjusted by Lender to reflect
all additional costs incurred by Lender in connection with the payments
by Lender or the withholding by Borrowers of such Tax and Borrowers
shall provide Lender with a statement detailing the amount of any such
Tax actually paid by Borrowers. Determination by Lender of the amount
of such costs shall, in the absence of manifest error, be conclusive,
and at Borrowers' request, Lender shall demonstrate the basis of such
determination. If after any such adjustment, any part of any Tax paid
by Lender is subsequently recovered by Lender, Lender shall reimburse
Borrowers to the extent of the amount so recovered. A certificate of an
officer of Lender setting forth the amount of such recovery and the
basis therefor shall, in the absence of manifest error, be conclusive.
2.1.2 Default Rate of Interest. Upon and during the
continuance of an Event of Default, and during the
continuation thereof, the principal amount of all Loans shall
bear interest at a rate per annum equal to two percent (2%)
above the interest rate otherwise applicable thereto (the
"Default Rate").
2.1.3 Maximum Interest. In no event whatsoever shall
the aggregate of all amounts deemed interest hereunder or
under the Term Note and charged or collected pursuant to the
terms of this Agreement or pursuant to the Term Note exceed
the highest rate permissible under any law which a court of
competent jurisdiction shall, in a final determination, deem
applicable hereto. If any provisions of this Agreement, or the
Term Note are in contravention of any such law, such
provisions shall be deemed amended to conform thereto.
2.2 Computation of Interest and Fees. Interest, unused line fees
and collection charges hereunder shall be calculated daily and
shall be computed on the actual number of days elapsed over a
year of 360 days. For the purpose of computing interest
hereunder, all items of payment received by Lender shall be
deemed applied by Lender on account of the Obligations
(subject to final payment of such items) on the first Business
Day after receipt by Lender of such items in Lender's account
located in Chicago, Illinois.
2.3 Closing Fee. Borrowers shall pay to Lender a closing fee of
One Hundred Twenty-Five Thousand Dollars ($125,000), which
shall be fully earned and nonrefundable on the Closing Date
and shall be paid concurrently with the initial Loan
hereunder.
2.4 Unused Line Fee. Borrowers shall pay to Lender a fee equal to
one-half of one percent (1/2%) per annum of the average
monthly amount by which Sixteen Million Five Hundred Thousand
Dollars ($16,500,000) exceeds the sum of the outstanding
principal balance of the Revolving Credit Loans. The unused
line fee shall be payable monthly in arrears on the first day
of each calendar month hereafter.
2.5 Collection Charges. If items of payment are received by Lender
at a time when there are no Revolving Credit Loans
outstanding, such items of payment shall be subject to a
collection charge equal to one days' interest on the amount
thereof at the rate then applicable to Revolving Credit Loans,
which collection charges shall be payable by Borrowers to
Lender on the first Business Day of each month.
2.6 Audit and Appraisal Fees. Borrowers shall pay to Lender audit
and appraisal fees in the amount of $2,500 for each calendar
quarter or portion thereof within the Original Term hereof
plus all out-of-pocket expenses incurred by Lender in
connection with such audits and appraisals. Such fees shall be
payable on the first day of the month following the date of
issuance by Lender of a request for payment thereof to
Borrower which request shall itemize such fees and expenses in
reasonable detail.
2.7 Reimbursement of Expenses. If, at any time or times regardless
of whether or not an Event of Default then exists, Lender
incurs legal or accounting expenses or any other costs or
out-of-pocket expenses in connection with (i) the negotiation
and preparation of this Agreement or any of the other Loan
Documents, any amendment of or modification of this Agreement
or any of the other Loan Documents; (ii) the administration of
this Agreement or any of the other Loan Documents and the
transactions contemplated hereby and thereby; (iii) any
litigation, contest, dispute, suit, proceeding or action
(whether instituted by Lender, Borrowers or any other Person)
in any way relating to the Collateral, this Agreement or any
of the other Loan Documents or Borrowers' affairs; (iv) any
attempt to enforce any rights of Lender or any Participating
Lender against Borrowers or any other Person which may be
obligated to Lender by virtue of this Agreement or any of the
other Loan Documents, including, without limitation, the
Account Debtors provided that Borrowers shall not be required
to reimburse Participating Lenders for the cost of more than
one counsel in connection with any such enforcement action; or
(v) any attempt to inspect, verify, protect, preserve,
restore, collect, sell, liquidate or otherwise dispose of or
realize upon the Collateral; then all such reasonable legal
and accounting expenses, other costs and out of pocket
expenses of Lender shall be charged to Borrowers. All amounts
chargeable to Borrowers under this Section 2.7 shall be
Obligations secured by all of the Collateral, shall be payable
on demand to Lender or to such Participating Lender, as the
case may be, and shall bear interest from the date such demand
is made until paid in full at the rate applicable to Revolving
Credit Loans from time to time. Borrowers shall also reimburse
Lender for expenses incurred by Lender in its administration
of the Collateral to the extent and in the manner provided in
Section 6 hereof. The foregoing notwithstanding, (i) Lender
agrees that Borrowers shall not be required to reimburse
Lender for legal fees and out-of-pocket expenses incurred in
connection with the preparation and negotiation of this Loan
Agreement and the other Loan Documents executed on or about
the Closing Date in excess of $60,000, and (ii) Borrowers
shall not be required to reimburse Lender or any Participating
Lender for any costs or expenses incurred in any action in
which Borrowers, pursuant to a final non-appealable court
order, are the prevailing party. Lender acknowledge prior
receipt of Seventy-Five Thousand Dollars ($75,000) from
Company or Borrowers. Said amount shall be applied towards
expenses owed Lender pursuant to this Section 2.7 and any
excess shall be refunded to Borrowers.
2.8 Bank Charges. Borrowers shall pay to Lender, on demand, any
and all fees, costs or expenses which Lender pays to a bank or
other similar institution arising out of or in connection with
(i) the forwarding to Borrowers or any other Person on behalf
of Borrowers, by Lender, of proceeds of loans made by Lender
to Borrowers pursuant to this Agreement and (ii) the
depositing for collection, by Lender, of any check or item of
payment received or delivered to Lender on account of the
Obligations.
SECTION 3. LOAN ADMINISTRATION.
3.1 Manner of Borrowing Revolving Credit Loans. Borrowings under
the credit facility established pursuant to Section 1 hereof
shall be as follows:
3.1.1 Loan Requests. A request for a Revolving Credit
Loan shall be made, or shall be deemed to be made, in the
following manner: (i) EPI on behalf of itself, PPI on behalf
of itself or APP on behalf of itself, may give Lender notice
of its intention to borrow, in which notice EPI, PPI or APP,
as applicable, shall specify the amount of the proposed
borrowing and the proposed borrowing date, no later than 11:00
a.m. Chicago time on the proposed borrowing date, provided,
however, that no such request may be made at a time when there
exists a Default or an Event of Default; and (ii) the becoming
due of any amount required to be paid under this Agreement or
the Term Note, whether as interest or for any other
Obligation, shall be deemed irrevocably to be a request for a
Revolving Credit Loan on the due date in the amount required
to pay such interest or other Obligation. As an accommodation
to Borrowers, Lender may permit telephonic requests for loans
and electronic transmittal of instructions, authorizations,
agreements or reports to Lender by EPI, PPI or APP. Unless
EPI, PPI or APP, as applicable, specifically directs Lender in
writing not to accept or act upon telephonic or electronic
communications from either EPI, PPI or APP, Lender shall have
no liability to Borrowers for any loss or damage suffered by
any Borrower as a result of Lender's honoring of any requests,
execution of any instructions, authorizations or agreements or
reliance on any reports communicated to it telephonically or
electronically and purporting to have been sent to Lender by
Borrowers and Lender shall have no duty to verify the origin
of any such communication or the authority of the person
sending it.
3.1.2 Disbursement. Borrowers hereby irrevocably
authorize Lender to disburse the proceeds of each Revolving
Credit Loan requested, or deemed to be requested, pursuant to
this subsection 3.1.2 as follows: (i) the proceeds of each
Revolving Credit Loan requested under subsection 3.1.1(i)
shall be disbursed by Lender in lawful money of the United
States of America in immediately available funds, in the case
of the initial borrowing, in accordance with the terms of the
written disbursement letter from Borrowers, and in the case of
each subsequent borrowing, by wire transfer to such bank
account as may be agreed upon by EPI, PPI or APP, as
applicable, and Lender from time to time or elsewhere if
pursuant to a written direction from EPI, PPI or APP, as
applicable; and (ii) the proceeds of each Revolving Credit
Loan requested under subsection 3.1.1(ii) shall be disbursed
by Lender by way of direct payment of the relevant interest or
other Obligation.
3.1.3 Authorization. Borrowers hereby irrevocably
authorize Lender, in Lender's sole discretion, to advance to
Borrowers, and to charge to Borrowers' Loan Account hereunder
as a Revolving Credit Loan, a sum sufficient to pay all
interest accrued on the Obligations during the immediately
preceding month and to pay all costs, fees and expenses at any
time owed by Borrower to Lender hereunder. Lender shall
promptly give Borrowers notice of such advance.
3.2 Payments. Except where evidenced by notes or other instruments
issued or made by Borrowers to Lender specifically containing
payment provisions which are in conflict with this Section 3.2
(in which event the conflicting provisions of said notes or
other instruments shall govern and control), the Obligations
shall be payable as follows:
3.2.1 Principal. Principal payable on account of
Revolving Credit Loans shall be payable by Borrowers to Lender
immediately upon the earliest of (i) the receipt by Lender or
any Borrower of any proceeds of any of the Collateral other
than Equipment or real Property, to the extent of said
proceeds, (ii) the occurrence of an Event of Default in
consequence of which Lender elects to accelerate the maturity
and payment of the Obligations, or (iii) termination of this
Agreement pursuant to Section 4 hereof; provided, however,
that if an Overadvance shall exist at any time, Borrowers
shall, on demand, repay the Overadvance. Principal payable on
account of the Term Loan shall be payable by Borrowers to
Lender in accordance with the terms and conditions of the Term
Note and the provisions of this Agreement.
3.2.2 Interest. Interest accrued on the Prime Portion
and the LIBOR Portions shall be due on the earliest of (i) the
first day of each month (for the immediately preceding month),
computed through the last calendar day of the preceding month,
(ii) the occurrence of an Event of Default in the consequence
of which Lender elects to accelerate the maturity and payment
of the Obligations or (iii) termination of this Agreement
pursuant to Section 4 hereof; provided, however, the Borrowers
hereby irrevocably authorize Lender, in Lender's sole
discretion, to advance to Borrowers and to charge to
Borrowers' Loan Account hereunder as a Revolving Credit Loan,
a sum sufficient each month to pay all interest accrued on the
Prime Portion and the LIBOR Portions during the immediately
preceding month. Lender shall promptly give Borrowers notice
of such advance.
3.2.3 Costs, Fees and Charges. Costs, fees and
charges payable pursuant to this Agreement shall be payable by
Borrowers as and when provided in Section 2 hereof, to Lender
or to any other Person designated by Lender in writing.
3.2.4 Other Obligations. The balance of the
Obligations requiring the payment of money, if any, shall be
payable by Borrowers to Lender as and when provided in this
Agreement, the Other Agreements or the Security Documents, or
on demand, whichever is later.
3.3 Mandatory Prepayments.
3.3.1 Proceeds /of Sale, Loss, Destruction or
Condemnation of Collateral. Except as provided in subsection
6.4.2 hereof, if any Borrower sells any of the Equipment or
real Property, or if any of the Collateral is lost or
destroyed or taken by condemnation, Borrowers shall pay to
Lender, unless otherwise agreed by Lender, as and when
received by Borrowers and as a mandatory prepayment of the
Term Loan, a sum equal to the proceeds (including insurance
payments) received by any Borrower from such sale, loss,
destruction or condemnation. Any such mandatory prepayment of
the Term Loan shall be applied against regularly scheduled
installment payments due under the Term Note in inverse order
maturity, and shall be applied, pro rata, to the outstanding
principal balance of the EPI Term Note, the PPI Term Note and
the PPI Term Note.
3.4 Application of Payments and Collections. All items of payment
received by Lender by 12:00 noon, Chicago time, on any
Business Day shall be deemed received on that Business Day.
All items of payment received after 12:00 noon, Chicago time,
on any Business Day shall be deemed received on the following
Business Day. For the purpose of computing interest hereunder,
all items of payment received by Lender shall be deemed
applied by Lender on account of the Obligations (subject to
final payment of such items) on the first Business Day after
receipt of such item in immediately good funds. Borrowers
irrevocably waive the right to direct the application of any
and all payments and collections at any time or times
hereafter received by Lender from or on behalf of Borrowers,
and after the occurrence and during the continuation of an
Event of Default, Borrowers do hereby irrevocably agree that
Lender shall have the continuing exclusive right to apply and
reapply any and all such payments and collections received at
any time or times hereafter by Lender or its agent against the
Obligations, in such manner as Lender may deem advisable,
notwithstanding any entry by Lender upon any of its books and
records. If as the result of collections of Accounts as
authorized by subsection 6.2.6 hereof a credit balance exists
in the Loan Account, such credit balance shall not accrue
interest in favor of Borrowers, but shall be available to
Borrowers at any time or times for so long as no Default or
Event of Default exists. Such credit balance shall not be
applied or be deemed to have been applied as a prepayment of
the Term Loan, except that Lender may, at its option, offset
such credit balance against any of the Obligations upon and
during the continuation of an Event of Default.
3.5 All Loans to Constitute One Obligation. The Loans shall
constitute one general Obligation of Borrowers, and shall be
secured by Lender's Lien upon all of the Collateral.
3.6 Loan Account. Lender shall enter all Loans as debits to the
Loan Account and shall also record in the Loan Account all
payments made by Borrowers on any Obligations and all proceeds
of Collateral which are finally paid to Lender, and may record
therein, in accordance with customary accounting practice,
other debits and credits, including interest and all charges
and expenses properly chargeable to Borrowers.
3.7 Statements of Account. Lender will account to Borrowers
monthly with a statement of Loans, charges and payments made
pursuant to this Agreement, and such account rendered by
Lender shall be deemed final, binding and conclusive upon
Borrowers unless Lender is notified by Borrowers in writing to
the contrary within 30 days of the date each accounting is
mailed to Borrowers. Such notice shall only be deemed an
objection to those items specifically objected to therein.
SECTION 4. TERM AND TERMINATION
4.1 Term of Agreement. Subject to Lender's right to cease making
Loans to Borrowers upon or during the continuation of any
Default or Event of Default, this Agreement shall be in effect
for a period of three (3) years from the date hereof, through
and including May 9, 1999 (the "Original Term"), unless
terminated as provided in Section 4.2 hereof.
4.2 Termination.
4.2.1 Termination by Lender. Upon at least 90 days
prior written notice to Borrowers, Lender may terminate this
Agreement as of the last day of the Original Term and Lender
may terminate this Agreement without notice upon or during the
continuation of an Event of Default.
4.2.2 Termination by Borrower. Upon at least 90 days
prior written notice to Lender, Borrowers may, at their
option, terminate this Agreement; provided, however, no such
termination (either pursuant to Section 4.2.1 above or this
Section 4.2.2) shall be effective until Borrowers have paid
all of the Obligations in immediately available funds. Any
notice of termination given by Borrowers shall be irrevocable
unless Lender otherwise agrees in writing, and Lender shall
have no obligation to make any Loans on or after the
termination date stated in any such termination notice given
pursuant to this Section 4.2.2 or pursuant to Section 4.2.1
above. Borrowers may elect to terminate this Agreement in its
entirety only. No section of this Agreement or type of Loan
available hereunder may be terminated singly.
4.2.3 Termination Charges. At the effective date of
termination of this Agreement for any reason, Borrowers shall
pay to Lender (in addition to the then outstanding principal,
accrued interest and other charges owing under the terms of
this Agreement and any of the other Loan Documents) as
liquidated damages for the loss of the bargain and not as a
penalty, an amount equal to (i) the sum of one percent of the
lesser of the principal balance of the Term Loan or Four
Million Dollars ($4,000,000) less the amount of any prior
prepayments of the Term Loan plus three percent (3%) of the
remaining portion of the Total Credit Facility less the amount
of principal paid on the Term Loan as of such date, if
termination occurs during the first twelve-month period of the
Original Term (May 10, 1996 through May 9, 1997); (ii) the sum
of one percent (1%) of the lesser of the principal balance of
the Term Loan or Four Million Dollars ($4,000,000) less the
amount of any prior prepayments of the Term Loan plus two
percent (2%) of the remaining portion of the Total Credit
Facility less the amount of principal paid on the Term Loan as
of such date, if termination occurs during the second 12-month
period of the Original Term (May 10, 1997 through May 9,
1998); and one percent (1%) of the Total Credit Facility less
the amount of principal paid on the Term Loan as of such date
if termination occurs during the third 12-month period of the
Original Term (May 10, 1998 through May 8, 1999). If
termination occurs on the last day of the Original Term, no
termination charge shall be payable. Any other prepayment of
the Term Loan shall be subject to a prepayment fee equal to
(i) the sum of (x) one percent of the lesser of the amount of
the prepayment or Four Million Dollars ($4,000,000) less the
amount of any prior prepayments of the Term Loan plus (y)
three percent (3%) of the remainder (if any) of the
prepayment, if the prepayment occurs during the first
twelve-month period of the Original Term; the sum of (x) one
percent (1%) of the lesser of the amount of the prepayment or
($4,000,000) less the amount of any prior prepayments of the
Term Loan, plus (y) two percent (2%) of the remainder (if any)
of the prepayment if the prepayment occurs within the second
twelve month period of the Original Term; and one percent of
the amount of the prepayment, if the prepayment occurs during
the third 12-month period of the Original Term. No prepayment
fee shall be due in respect to any prepayment made after May
8, 1999.
4.2.4 Effect of Termination. All of the Obligations
shall be immediately due and payable upon the termination date
stated in any notice of termination of this Agreement. All
undertakings, agreements, covenants, warranties and
representations of Borrowers contained in the Loan Documents
shall survive any such termination and Lender shall retain its
Liens in the Collateral and all of its rights and remedies
under the Loan Documents notwithstanding such termination
until Borrowers have paid the Obligations to Lender, in full,
in immediately available funds, together with the applicable
termination charge, if any. Notwithstanding the payment in
full of the Obligations, Lender shall not be required to
terminate its security interests in the Collateral unless,
with respect to any loss or damage Lender may incur as a
result of dishonored checks or other items of payment received
by Lender from Borrowers or any Account Debtor and applied to
the Obligations, Lender shall, at its option, (i) have
received a written agreement, executed by Borrowers and by any
Person whose loans or other advances to Borrowers are used in
whole or in part to satisfy the Obligations, indemnifying
Lender from any such loss or damage; or (ii) have retained
such monetary reserves and Liens on the Collateral for such
period of time as Lender, in its reasonable discretion, may
deem necessary to protect Lender from any such loss or damage.
SECTION 5. SECURITY INTERESTS
5.1 Security Interest in Collateral. To secure the prompt payment
and performance to Lender of the Obligations, Borrowers hereby
grant to Lender a continuing Lien upon all of Borrowers'
assets, including all of the following Property and interests
in Property of Borrowers, whether now owned or existing or
hereafter created, acquired or arising and wheresoever
located:
(i) Accounts;
(ii) Inventory;
(iii) Equipment;
(iv) General Intangibles;
(v) Investment Property;
(vi) All monies and other Property of any kind
now or at any time or times hereafter in the possession or under the
control of Lender or a bailee or Affiliate of Lender;
(vii) All accessions to, substitutions for and all
replacements, products and cash and non-cash proceeds of (i) through
(vi) above, including, without limitation, proceeds of and unearned
premiums with respect to insurance policies insuring any of the
Collateral; and
(viii) All books and records (including, without
limitation, customer lists, credit files, computer programs,
print-outs, and other computer materials and records) of Borrower
pertaining to any of (i) through (vii) above.
5.2 Lien Perfection; Further Assurances. Borrowers shall execute
such UCC-1 financing statements as are required by the Code
and such other instruments, assignments or documents as are
necessary to perfect Lender's Lien upon any of the Collateral
and shall take such other action as may be required to perfect
or to continue the perfection of Lender's Lien upon the
Collateral. Unless prohibited by applicable law, Borrowers
hereby authorize Lender to execute and file any such financing
statement on Borrowers' behalf. The parties agree that a
carbon, photographic or other reproduction of this Agreement
shall be sufficient as a financing statement and may be filed
in any appropriate office in lieu thereof. At Lender's
request, Borrowers shall also promptly execute or cause to be
executed and shall deliver to Lender any and all documents,
instruments and agreements reasonably deemed necessary by
Lender to give effect to or carry out the terms or intent of
the Loan Documents.
5.3 Lien on Realty. The due and punctual payment and performance
of the Obligations shall also be secured by the Lien created
by the Mortgages. If any Borrower shall acquire at any time or
times hereafter any interest in other real Property (other
than leasehold interests in sales offices), such Borrower
agrees promptly to execute and deliver to Lender, as
additional security and Collateral for the Obligations, deeds
of trust, security deeds, mortgages or other collateral
assignments satisfactory in form and substance to Lender and
its counsel (herein collectively referred to as "New
Mortgages") covering such real Property. The Mortgages and
each New Mortgage shall be duly recorded (at Borrowers'
expense) in each office where such recording is required to
constitute a valid Lien on the real Property covered thereby.
In respect to each Mortgage and each New Mortgage, such
Borrower shall deliver to Lender, at Borrowers' expense,
mortgagee title insurance policies issued by a title insurance
company satisfactory to Lender insuring Lender, as mortgagee;
such policies shall be in form and substance satisfactory to
Lender and shall insure a valid first Lien in favor of Lender
on the Property covered thereby, subject only to those
exceptions acceptable to Lender and its counsel. Said policies
shall be in form and substance satisfactory to Lender. Such
Borrower shall also deliver to Lender such other documents,
including, without limitation, ALTA Surveys of the real
Property, as Lender and its counsel may reasonably request
relating to the real Property subject to any such New
Mortgage.
SECTION 6. COLLATERAL ADMINISTRATION
6.1 General
6.1.1 Location of Collateral. All Collateral, other
than Inventory in transit and motor vehicles, will at all
times be kept by Borrowers and their respective Subsidiaries
at one or more of the business locations set forth in Exhibit
B hereto and shall not, without the prior written approval of
Lender, be moved therefrom except, prior to an Event of
Default and Lender's acceleration of the maturity of the
Obligations in consequence thereof, for (i) sales of Inventory
in the ordinary course of business; and (ii) removals in
connection with dispositions of Equipment that are authorized
by subsection 6.4.2 hereof.
6.1.2 Insurance of Collateral. Borrowers shall
maintain and pay for insurance upon all Collateral wherever
located and with respect to Borrowers' business, covering
casualty, hazard, public liability and such other risks in
such amounts and with such insurance companies as are
reasonably satisfactory to Lender. Borrowers shall deliver the
originals of such policies to Lender with satisfactory
lender's loss payable endorsements, naming Lender as sole loss
payee, assignee or additional insured, as appropriate. Each
policy of insurance or endorsement shall contain a clause
requiring the insurer to give not less than 30 days prior
written notice to Lender in the event of cancellation of the
policy for any reason whatsoever and a clause specifying that
the interest of Lender shall not be impaired or invalidated by
any act or neglect of Borrowers or the owner of the Property
or by the occupation of the premises for purposes more
hazardous than are permitted by said policy. If Borrowers fail
to provide and pay for such insurance, Lender may, at its
option, but shall not be required to, procure the same and
charge Borrowers therefor. Borrowers agree to deliver to
Lender, promptly as rendered, true copies of all reports made
in any reporting forms to insurance companies.
6.1.3 Protection of Collateral. All expenses of
protecting, storing, warehousing, insuring, handling,
maintaining and shipping the Collateral, any and all excise,
property, sales, and use taxes imposed by any state, federal,
or local authority on any of the Collateral or in respect of
the sale thereof shall be borne and paid by Borrowers. If
Borrowers fail to promptly pay any portion thereof when due,
Lender may, at its option, but shall not be required to, pay
the same and charge Borrowers therefor. Lender shall not be
liable or responsible in any way for the safekeeping of any of
the Collateral or for any loss or damage thereto (except for
reasonable care in the custody thereof while any Collateral is
in Lender's actual possession) or for any diminution in the
value thereof, or for any act or default of any warehouseman,
carrier, forwarding agency, or other person whomsoever, but
the same shall be at Borrowers' sole risk.
6.2 Administration of Accounts.
6.2.1 Records, Schedules and Assignments of Accounts.
EPI shall execute and deliver to Lender a Borrowing Base
Certificate in the form attached hereto as Exhibit C on a
monthly basis or, if requested by Lender, more frequently. PPI
and APP shall execute and deliver to Lender a Borrowing Base
Certificate in the form attached hereto as Exhibit C-1 on a
monthly basis or, if requested by Lender, more frequently.
Each Borrower shall keep accurate and complete records of
their Accounts and all payments and collections thereon and
shall submit to Lender on such periodic basis as Lender shall
request a sales and collections report for the preceding
period, in form satisfactory to Lender. On or before the
fifteenth day of each month from and after the date hereof,
each Borrower shall deliver to Lender, in form acceptable to
Lender, a detailed aged trial balance of all of its Accounts
existing as of the last day of the preceding month, specifying
the names, addresses, face value, dates of invoices and due
dates for each Account Debtor obligated on an Account so
listed ("Schedule of Accounts"), and, upon Lender's request
therefor, copies of proof of delivery and the original copy of
all documents, including, without limitation, repayment
histories and present status reports relating to the Accounts
so scheduled and such other matters and information relating
to the status of then existing Accounts as Lender shall
reasonably request. If requested by Lender, each Borrower
shall execute and deliver to Lender formal written assignments
of all of its Accounts weekly or daily, which shall include
all Accounts that have been created since the date of the last
assignment, together with copies of invoices or invoice
registers related thereto.
6.2.2 Discounts, Allowances, Disputes. If any
Borrower grants any discounts, allowances or credits that are
not shown on the face of the invoice for the Account involved,
Borrowers shall report such discounts, allowances or credits,
as the case may be, to Lender as part of the next required
Schedule of Accounts. If any amounts due and owing in excess
of $25,000 are in dispute between any Borrower and any Account
Debtor, Borrowers shall provide Lender with written notice
thereof at the time of submission of the next Schedule of
Accounts, explaining in detail the reason for the dispute, all
claims related thereto and the amount in controversy. Upon and
during the continuation of an Event of Default, Lender shall
have the right to settle or adjust all disputes and claims
directly with the Account Debtor and to compromise the amount
or extend the time for payment of the Accounts upon such terms
and conditions as Lender may deem advisable, and to charge the
deficiencies, costs and expenses thereof, including reasonable
attorney's fees, to Borrowers.
6.2.3 Taxes. If an Account includes a charge for any
tax payable to any governmental taxing authority, Lender is
authorized, in its sole discretion, to pay the amount thereof
to the proper taxing authority for the account of Borrowers
and to charge Borrowers therefor, provided, however, that
Lender shall not be liable for any taxes to any governmental
taxing authority that may be due by any Borrower. Borrowers
will be given notice of, and will be consulted with respect
to, such payment if no Event of Default has occurred and is
continuing.
6.2.4 Account Verification. Whether or not a Default
or an Event of Default has occurred, any of Lender's officers,
employees or agents shall have the right, at any time or times
hereafter, in the name of Lender, any designee of Lender or
Borrowers, to verify the validity, amount or any other matter
relating to any Accounts by mail, telephone, telegraph or
otherwise. Borrowers shall cooperate fully with Lender in an
effort to facilitate and promptly conclude any such
verification process. So long as no Event of Default has
occurred and is continuing, the Lender will verify accounts
using an anonymous name or some third party service.
6.2.5 Maintenance of Dominion Account. Borrowers
shall maintain a Dominion Account(s) pursuant to a lockbox
arrangement acceptable to Lender with such banks as may be
selected by Borrowers and be acceptable to Lender. Borrowers
shall issue to any such banks an irrevocable letter of
instruction directing such banks to deposit all payments or
other remittances received in the lockbox to the Dominion
Account for application on account of the Obligations. All
funds deposited in the Dominion Account shall immediately
become the property of Lender and Borrowers shall obtain the
agreement by such banks in favor of Lender to waive any offset
rights against the funds so deposited. Lender assumes no
responsibility for such lockbox arrangement, including,
without limitation, any claim of accord and satisfaction or
release with respect to deposits accepted by any bank
thereunder.
6.2.6 Collection of Accounts, Proceeds of Collateral.
To expedite collection, Borrowers shall endeavor in the first
instance to make collection of their respective Accounts for
Lender. All remittances received by such Borrower on account
of Accounts, together with the proceeds of any other
Collateral, shall be held as Lender's property by Borrowers as
trustee of an express trust for Lender's benefit and Borrowers
shall immediately deposit same in kind in the Dominion
Account. Lender retains the right at all times during the
continuance of a Default or an Event of Default to notify
Account Debtors that Accounts have been assigned to Lender and
to collect Accounts directly in its own name and to charge the
collection costs and expenses, including attorneys' fees to
Borrowers.
6.3 Administration of Inventory.
6.3.1 Records and Reports of Inventory. Borrowers
shall keep accurate and complete records of its Inventory.
Each Borrower shall furnish Lender Inventory reports in form
and detail satisfactory to Lender at such times as Lender may
request, but at least once each month, not later than the
fifteen day of such month. Borrowers shall conduct a physical
inventory no less frequently than annually and shall provide
to Lender a report based on each such physical inventory
promptly thereafter, together with such supporting information
as Lender shall request.
6.3.2 Returns of Inventory. If at any time or times
hereafter any Account Debtor returns any Inventory to
Borrowers the shipment of which generated an Account on which
such Account Debtor is obligated in excess of $35,000,
Borrowers shall immediately notify Lender of the same,
specifying the reason for such return and the location,
condition and intended disposition of the returned Inventory.
6.4 Administration of Equipment.
6.4.1 Records and Schedules of Equipment. Borrowers
shall keep accurate records itemizing and describing the kind,
type, quality, quantity and value of its Equipment and all
dispositions made in accordance with subsection 6.4.2 hereof,
and shall furnish Lender with a current schedule containing
the foregoing information on at least an annual basis and more
often if requested by Lender. Immediately on request therefor
by Lender, Borrowers shall deliver to Lender any and all
evidence of ownership, if any, of any of the Equipment.
6.4.2 Dispositions of Equipment. No Borrower will
sell, lease or otherwise dispose of or transfer any of the
Equipment or any part thereof without the prior written
consent of Lender; provided, however, that the foregoing
restriction shall not apply, for so long as no Default or
Event of Default exists, to (i) dispositions of Equipment
which, in the aggregate during any consecutive twelve-month
period, has a fair market value or book value, whichever is
less, of $250,000 or less, provided that all proceeds thereof
are remitted to Lender for application to the outstanding
principal balance of the Term Loan (which proceeds shall be
applied to regularly schedule installments of principal in
inverse order of maturity), or (ii) replacements of Equipment
that is substantially worn, damaged or obsolete with Equipment
of like kind, function and value, provided that the
replacement Equipment shall be acquired prior to or
concurrently with any disposition of the Equipment that is to
be replaced, the replacement Equipment shall be free and clear
of Liens other than Permitted Liens that are not Purchase
Money Liens, and Borrowers shall have given Lender at least 5
days prior written notice of such disposition.
6.5 Payment of Charges. All amounts chargeable to Borrowers under
Section 6 hereof shall be Obligations secured by all of the
Collateral, shall be payable on demand and shall bear interest
from the date such advance was made until paid in full at the
rate applicable to Revolving Credit Loans from time to time.
SECTION 7. REPRESENTATIONS AND WARRANTIES
7.1 General Representations and Warranties. To induce Lender to
enter into this Agreement and to make advances hereunder,
Borrowers warrant, represent and covenant to Lender that:
7.1.1 Organization and Qualification. Each Borrower
and each of their respective Subsidiaries is a corporation
duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation. Each
Borrower and each of their respective Subsidiaries is duly
qualified and is authorized to do business and is in good
standing as a foreign corporation in each state or
jurisdiction listed on Exhibit D hereto and in all other
states and jurisdictions in which the failure of such Borrower
or such Subsidiaries to be so qualified would have a material
adverse effect on the financial condition, business or
Properties of such Borrower or such Subsidiaries.
7.1.2 Corporate Power and Authority. Each Borrower
and each of their respective Subsidiaries is duly authorized
and empowered to enter into, execute, deliver and perform this
Agreement and each of the other Loan Documents to which it is
a party. The execution, delivery and performance of this
Agreement and each of the other Loan Documents have been duly
authorized by all necessary corporate action and do not and
will not (i) require any consent or approval of the
shareholders of any Borrower or any of their respective
Subsidiaries; (ii) contravene any Borrower's or any of their
respective Subsidiaries' charter, articles or certificate of
incorporation or by-laws; (iii) violate, or cause any Borrower
or any of their respective Subsidiaries to be in default
under, any provision of any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award in
effect having applicability to any Borrower or any of their
respective Subsidiaries; (iv) result in a breach of or
constitute a default under any indenture or loan or credit
agreement or any other agreement, lease or instrument to which
any Borrower or any of their respective Subsidiaries is a
party or by which any such Borrower of Subsidiary or its
Properties may be bound or affected; or (v) result in, or
require, the creation or imposition of any Lien (other than
Permitted Liens) upon or with respect to any of the Properties
now owned or hereafter acquired by any Borrower or any of
their respective Subsidiaries.
7.1.3 Legally Enforceable Agreement. This Agreement is, and
each of the other Loan Documents when delivered under this
Agreement will be, a legal, valid and binding obligation of
each Borrower and each of their respective Subsidiaries (to
the extent a party thereto) enforceable against each of them
in accordance with its respective terms.
7.1.4 Capital Structure. Exhibit E hereto states (i) the
correct name of each of the Subsidiaries of each Borrower, its
jurisdiction of incorporation and the percentage of its Voting
Stock owned by each Borrower, (ii) the name of each Borrower's
corporate or joint venture Affiliates and the nature of the
affiliation, (iii) the number, nature and holder of all
outstanding Securities of each Borrower and each Subsidiary of
each Borrower and (iv) the number of authorized, issued and
treasury shares of each Borrower and each Subsidiary of each
Borrower. Each Borrower has good title to all of the shares it
purports to own of the stock of each of its Subsidiaries, free
and clear in each case of any Lien other than Permitted Liens.
All such shares have been duly issued and are fully paid and
non-assessable. Except as disclosed on Exhibit E hereto, there
are no outstanding options to purchase, or any rights or
warrants to subscribe for, or any commitments or agreements to
issue or sell, or any Securities or obligations convertible
into, or any powers of attorney relating to, shares of the
capital stock of any Borrower or any of their respective
Subsidiaries. There are no outstanding agreements or
instruments binding upon any of Borrower's shareholders
relating to the ownership of its shares of capital stock.
7.1.5 Corporate Names. No Borrower or any of
Borrowers' respective Subsidiaries has been known as or used
any corporate, fictitious or trade names except those listed
on Exhibit F hereto. Except as set forth on Exhibit F, no
Borrower or any of Borrowers' Subsidiaries has been the
surviving corporation of a merger or consolidation or acquired
all or substantially all of the assets of any Person.
7.1.6 Business Locations; Agent for Process. Each
Borrower's and each of their respective Subsidiaries' chief
executive office and other places of business are as listed on
Exhibit B hereto. During the preceding one-year period,
neither Borrowers nor any of their respective Subsidiaries has
had an office, place of business or agent for service of
process other than as listed on Exhibit B. Except as shown on
Exhibit B, no inventory is stored with a bailee, warehouseman
or similar party, nor is any Inventory consigned to any
Person.
7.1.7 Title to Properties; Priority of Liens. Each
Borrower and each of their respective Subsidiaries has good,
indefeasible and marketable title to and fee simple ownership
of, or valid and subsisting leasehold interests in, all of its
real Property, and good title to all of the Collateral and all
of its other Property, in each case, free and clear of all
Liens except Permitted Liens. Borrowers have paid or
discharged all lawful claims which, if unpaid, might become a
Lien against any of Borrower's Properties that is not a
Permitted Lien. The Liens granted to Lender under Section 5
hereof are first priority Liens, subject only to Permitted
Liens.
7.1.8 Accounts. Lender may rely, in determining which
Accounts are Eligible Accounts, on all statements and
representations made by Borrowers with respect to any Account
or Accounts. Unless otherwise indicated in writing to Lender,
with respect to each Account:
(i) It is genuine and in all respects what it
purports to be, and it is not evidenced by a judgment;
(ii) It arises out of a completed, bona fide sale and
delivery of goods or rendition of services by a Borrower in the
ordinary course of its business and in accordance with the terms and
conditions of all purchase orders, contracts or other documents
relating thereto and forming a part of the contract between such
Borrower and the Account Debtor;
(iii) It is for a liquidated amount maturing as
stated in the duplicate invoice covering such sale or rendition of
services, a copy of which has been furnished or is available to Lender;
(iv) Such Account, and Lender's security interest
therein, is not, and will not (by voluntary act or omission of any
Borrower) be in the future, subject to any offset, Lien, deduction,
defense, dispute, counterclaim or any other adverse condition except
for disputes resulting in returned goods where the amount in
controversy is deemed by Lender to be immaterial, and each such Account
is absolutely owing to such Borrower and is not contingent in any
respect or for any reason;
(v) Borrowers have made no agreement with any Account
Debtor thereunder for any extension, compromise, settlement or
modification of any such Account or any deduction therefrom, except
discounts or allowances which are granted by a Borrower in the ordinary
course of its business for prompt payment and which are reflected in
the calculation of the net amount of each respective invoice related
thereto and are reflected in the Schedules of Accounts submitted to
Lender pursuant to subsection 6.2.1 hereof;
(vi) There are no facts, events or occurrences which
in any way impair the validity or enforceability of any Accounts or
tend to reduce the amount payable thereunder from the face amount of
the invoice and statements delivered to Lender with respect thereto;
(vii) To the best of each Borrower's knowledge, the
Account Debtor thereunder (1) had the capacity to contract at the time
any contract or other document giving rise to the Account was executed
and (2) such Account Debtor is Solvent; and
(viii) To the best of each Borrower's knowledge,
there are no proceedings or actions which are threatened or pending
against any Account Debtor thereunder which might result in any
material adverse change in such Account Debtor's financial condition or
the collectibility of such Account.
7.1.9 Equipment. The Equipment is in good operating
condition and repair, and all necessary replacements of and
repairs thereto shall be made so that the value and operating
efficiency of the Equipment shall be maintained and preserved,
reasonable wear and tear excepted. Borrowers will not permit
any of the Equipment to become affixed to any real Property
leased to any Borrower so that an interest arises therein
under the real estate laws of the applicable jurisdiction
unless the landlord of such real Property has executed a
landlord waiver or leasehold mortgage in favor of and in form
acceptable to Lender, and no Borrower will permit any of the
Equipment to become an accession to any personal Property
other than Equipment that is subject to first priority (except
for Permitted Liens) Liens in favor of Lender.
7.1.10 Financial Statements; Fiscal Year. The
Consolidated and consolidating balance sheets of Company and
such other Persons described therein (including the accounts
of all Subsidiaries of Company for the respective periods
during which a Subsidiary relationship existed) as of December
31, 1995, and the related statements of income, changes in
stockholder's equity, and changes in financial position for
the periods ended on such dates, have been prepared in
accordance with GAAP, and present fairly the financial
positions of Company and such Persons at such dates and the
results of Company's operations for such periods. Since
December 31, 1995, there has been no material change in the
condition, financial or otherwise, of Company and such other
Persons as shown on the Consolidated balance sheet as of such
date and no change in the aggregate value of Equipment and
real Property owned by Borrowers or such other Persons, except
changes in the ordinary course of business, none of which
individually or in the aggregate has been materially adverse.
The fiscal year of Company, Borrowers and each of their
respective Subsidiaries ends on December 31st of each year.
7.1.11 Full Disclosure. The financial statements
referred to in subsection 7.1.10 hereof do not, nor does this
Agreement or any other written statement of any Borrower to
Lender, contain any untrue statement of a material fact or
omit a material fact necessary to make the statements
contained therein or herein not misleading. There is no fact
which any Borrower has failed to disclose to Lender in writing
which materially affects adversely or, so far as any Borrower
can now foresee, will materially affect adversely the
Properties, business, prospects, profits or condition
(financial or otherwise) of any Borrower or any of their
respective Subsidiaries or the ability of any Borrower or any
of their respective Subsidiaries to perform this Agreement or
the other Loan Documents.
7.1.12 Solvent Financial Condition. Each Borrower and
each of their respective Subsidiaries is now and, after giving
effect to the Loans and the provisions of Section 11.17 of
this Agreement and the applicable reimbursement provisions of
the Subordinated Debt Documents, at all times will be,
Solvent.
7.1.13 Surety Obligations. No Borrower or any of such
Borrower's respective Subsidiaries is obligated as surety or
indemnitor under any surety or similar bond or other contract
issued or entered into any agreement to assure payment,
performance or completion of performance of any undertaking or
obligation of any Person.
7.1.14 Taxes. Company's federal tax identification
number is 41-1642846. EPI's federal tax identification number
is 47-0675821. PPI's federal tax identification number is
93-0814642. APP's federal tax identification number is
87-0463461. The federal tax identification number of each of
Borrowers' Subsidiaries is shown on Exhibit G hereto. Company,
Borrowers and each of their respective Subsidiaries have filed
all federal, state and local tax returns and other reports any
of them is required by law to file and has paid, or made
provision for the payment of, all taxes, assessments, fees,
levies and other governmental charges upon any of them, any of
their income and Properties as and when such taxes,
assessments, fees, levies and charges that are due and
payable, unless and to the extent any thereof are being
actively contested in good faith and by appropriate
proceedings and Company and Borrowers maintains reasonable
reserves on their books therefor. The provision for taxes on
the books of Company and Borrowers and their respective
Subsidiaries are adequate for all years not closed by
applicable statutes, and for its current fiscal year.
7.1.15 Brokers. Except for fees payable to BA
Securities, Inc. in an amount not to exceed $345,000, there
are no claims for brokerage commissions, finder's fees or
investment banking fees in connection with the transactions
contemplated by this Agreement.
7.1.16 Patents, Trademarks, Copyrights and Licenses.
Each Borrower and each of their respective Subsidiaries owns
or possesses all the patents, trademarks, service marks, trade
names, copyrights and licenses necessary for the present and
planned future conduct of its business without any known
conflict with the rights of others. All such patents,
trademarks, service marks, tradenames, copyrights, licenses
and other similar rights are listed on Exhibit H hereto.
7.1.17 Governmental Consents. Each Borrower and each
of their respective Subsidiaries has, and is in good standing
with respect to, all governmental consents, approvals,
licenses, authorizations, permits, certificates, inspections
and franchises necessary to continue to conduct its business
as heretofore or proposed to be conducted by it and to own or
lease and operate its Properties as now owned or leased by it.
7.1.18 Compliance with Laws. Each Borrower and each
of their respective Subsidiaries has duly complied with, and
its Properties, business operations and leaseholds are in
compliance in all material respects with, the provisions of
all federal, state and local laws, rules and regulations
applicable to such Borrower or such Subsidiary, as applicable,
its Properties or the conduct of its business and there have
been no citations, notices or orders of noncompliance issued
to such Borrower or any of their respective Subsidiaries under
any such law, rule or regulation. Each Borrower and each of
their respective Subsidiaries has established and maintains an
adequate monitoring system to insure that it remains in
compliance with all federal, state and local laws, rules and
regulations applicable to it. No Inventory has been produced
in violation of the Fair Labor Standards Act (29 U.S.C.
ss 201 et seq.) as amended.
7.1.19 Restrictions. No Borrower or any of Borrowers'
Subsidiaries are or is a party or subject to any contract,
agreement, or charter or other corporate restriction, which
materially and adversely affects its business or the use or
ownership of any of its Properties. No Borrower or any of
their respective Subsidiaries are or is a party or subject to
any contract or agreement which restricts its right or ability
to incur Indebtedness, other than as set forth on Exhibit I
hereto, none of which prohibit the execution of or compliance
with this Agreement or the other Loan Documents by Borrowers
or any of their respective Subsidiaries, as applicable.
7.1.20 Litigation. Except as set forth on Exhibit J
hereto, there are no actions, suits, proceedings or
investigations pending, or to the knowledge of any Borrower,
threatened, against or affecting any Borrower or any of their
respective Subsidiaries, or the business, operations,
Properties, prospects, profits or condition of any Borrower or
any of their respective Subsidiaries. No Borrower or any of
Borrowers' respective Subsidiaries are or is in default with
respect to any order, writ, injunction, judgment, decree or
rule of any court, governmental authority or arbitration board
or tribunal.
7.1.21 No Defaults. No event has occurred and no
condition exists which would, upon or after the execution and
delivery of this Agreement or Borrowers' performance
hereunder, constitute a Default or an Event of Default. No
Borrower or any of Borrowers' respective Subsidiaries are or
is in default, and no event has occurred and no condition
exists which constitutes, or which with the passage of time or
the giving of notice or both would constitute, a default in
the payment of any Indebtedness to any Person for Money
Borrowed.
7.1.22 Leases. Exhibit K hereto is a complete listing
of all capitalized leases of Borrowers and their respective
Subsidiaries and Exhibit L hereto is a complete listing of all
operating leases of Borrowers and their respective
Subsidiaries. Each Borrower and each of their respective
Subsidiaries is in full compliance with all of the terms of
each of its respective capitalized and operating leases.
7.1.23 Pension Plans. Except as disclosed on Exhibit
M hereto, no Borrower or any of Borrowers' Subsidiaries has
any Plan. Each Borrower and each of their respective
Subsidiaries is in full compliance with the requirements of
ERISA and the regulations promulgated thereunder with respect
to each Plan. No fact or situation that could result in a
material adverse change in the financial condition of
Borrowers or any of their respective Subsidiaries exists in
connection with any Plan. No Borrower or any of Borrowers'
respective Subsidiaries has any withdrawal liability in
connection with a Multiemployer Plan.
7.1.24 Trade Relations. There exists no actual or
threatened termination, cancellation or limitation of, or any
modification or change in, the business relationship between
any Borrower or any of their respective Subsidiaries and any
customer or any group of customers whose purchases
individually or in the aggregate are material to the business
of any Borrower or any of their respective Subsidiaries, or
with any material supplier, and there exists no present
condition or state of facts or circumstances which would
materially affect adversely any Borrower or any of their
respective Subsidiaries or prevent any Borrower or any of
their respective Subsidiaries from conducting such business
after the consummation of the transaction contemplated by this
Agreement in substantially the same manner in which it has
heretofore been conducted.
7.1.25 Labor Relations. Except as described on
Exhibit N hereto, neither Borrowers nor any of their
respective Subsidiaries are or is a party to any collective
bargaining agreement. There are no material grievances,
disputes or controversies with any union or any other
organization of Borrowers' or any of their respective
Subsidiaries' employees, or threats of strikes, work stoppages
or any asserted pending demands for collective bargaining by
any union or organization.
7.2 Continuous Nature of Representations and Warranties. Each
representation and warranty contained in this Agreement and
the other Loan Documents shall be continuous in nature and
shall remain accurate, complete and not misleading at all
times during the term of this Agreement, except for changes in
the nature of Borrowers' or their respective Subsidiaries'
business or operations that would render the information in
any exhibit attached hereto either inaccurate, incomplete or
misleading, so long as Lender has consented to such changes or
such changes are expressly permitted by this Agreement.
7.3 Survival of Representations and Warranties. All
representations and warranties of Borrowers contained in this
Agreement or any of the other Loan Documents shall survive the
execution, delivery and acceptance thereof by Lender and the
parties thereto and the closing of the transactions described
therein or related thereto.
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS
8.1 Affirmative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender,
Borrowers covenant that, unless otherwise consented to by
Lender in writing, they each shall:
8.1.1 Visits and Inspections. Permit representatives of
Lender, from time to time, as often as may be reasonably
requested, but only during normal business hours, to visit and
inspect the Properties of Borrowers and each of their
respective Subsidiaries, inspect, audit and make extracts from
its books and records, and discuss with its officers, its
employees and its independent accountants, Borrowers' and each
of their respective Subsidiaries' business, assets,
liabilities, financial condition, business prospects and
results of operations.
8.1.2 Notices. Promptly notify Lender in writing of the
occurrence of any event or the existence of any fact which
renders any representation or warranty in this Agreement or
any of the other Loan Documents inaccurate, incomplete or
misleading.
8.1.3 Financial Statements. Keep, and cause each of their
respective Subsidiaries to keep, adequate records and books of
account with respect to its business activities in which
proper entries are made in accordance with GAAP reflecting all
its financial transactions; and cause to be prepared and
furnished to Lender the following (all to be prepared in
accordance with GAAP applied on a consistent basis, unless
Company's or Borrowers' certified public accountants concur in
any change therein and such change is disclosed to Lender and
is consistent with GAAP):
(i) not later than 105 days after the close of each
fiscal year of Company, unqualified audited (in respect to the
Consolidated financial statements only) financial statements of Company
and its Subsidiaries (including, without limitation, EPI PPI and APP)
as of the end of such year, on a Consolidated and consolidating basis,
certified (in respect to the Consolidated financial statements only) by
a firm of independent certified public accountants of recognized
standing selected by Company but acceptable to Lender (except for a
qualification for a change in accounting principles with which the
accountant concurs);
(ii) not later than 30 days after the end of each
month hereafter, including the last month of Company's fiscal year,
unaudited interim financial statements of Company and its respective
Subsidiaries (including, without limitation, EPI, PPI and APP) as of
the end of such month and of the portion of Company's financial year
then elapsed, on a Consolidated and consolidating basis, certified by
the principal financial officer of Company as prepared in accordance
with GAAP and fairly presenting the Consolidated financial position and
results of operations of Company and its Subsidiaries (including,
without limitation, EPI, PPI and APP) for such month and period subject
only to changes from audit and year-end adjustments and except that
such statements need not contain notes;
(iii) promptly after the sending or filing thereof,
as the case may be, copies of any proxy statements, financial
statements or reports which Company or Borrowers has or have made
available to its shareholders and copies of any regular, periodic and
special reports or registration statements which Company or Borrowers
files or file with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or any
national securities exchange;
(iv) promptly after the filing thereof, copies of any
annual report to be filed with ERISA in connection with each Plan; and
(v) such other data and information (financial and
otherwise) as Lender, from time to time, may reasonably request,
bearing upon or related to the Collateral or Borrowers' and each of
their respective Subsidiaries' financial condition or results of
operations.
Concurrently with the delivery of the financial statements
described in clause (i) of this subsection 8.1.3, Borrowers
shall forward to Lender a copy of the accountants' letter to
Borrowers' or Company's management that is prepared in
connection with such financial statements and also shall cause
to be prepared and shall furnish to Lender a certificate of
the aforesaid certified public accountants certifying to
Lender that, based upon their examination of the financial
statements of Company and its Subsidiaries performed in
connection with their examination of said financial
statements, they are not aware of any Default or Event of
Default, or, if they are aware of such Default or Event of
Default, specifying the nature thereof, and acknowledging, in
a manner satisfactory to Lender, that they are aware that
Lender is relying on such financial statements in making its
decisions with respect to the Loans. Concurrently with the
delivery of the financial statements described in clauses (i)
and (ii) of this subsection 8.1.3, or more frequently if
requested by Lender, Borrowers shall cause to be prepared and
furnished to Lender a Compliance Certificate in the form of
Exhibit O hereto executed by the Chief Financial Officer of
Company.
Borrowers authorize Lender or its designated representatives
to communicate directly with their independent certified
public accountants and authorize those accountants to disclose
to Lender any and all financial statements and other
supporting financial documents and schedules. At or before the
initial Closing Date, Borrowers' shall cause Company to
deliver a letter addressed to such accountants instructing
them to comply with the provisions of this Section 8.1.3.
Further within five (5) days after the earlier of the last day
of each fiscal year of Company and the date Company engaged
independent certified public accountants to audit Company's
financial statements, Borrowers shall cause Company to deliver
to such independent certified public accountants a letter from
Company addressed to such independent certified public
accountants indicating that it is a primary intention of
Company in engaging such accountants that Lender relies upon
such financial statements of Company and its Subsidiaries,
including without limitation, EPI, PPI and APP.
8.1.4 Landlord and Storage Agreements. Provide Lender
with copies of all agreements between any Borrower or any of
their respective Subsidiaries and any landlord or warehouseman
which owns any premises at which any Inventory may, from time
to time, be kept.
8.1.5 Projections. No later than 30 days prior to the
end of each fiscal year of Borrowers, deliver to Lender
Projections of Company and each Borrower on a Consolidated and
unconsolidated basis for the forthcoming 3 years, year by
year, and for the forthcoming fiscal year, month by month.
8.2 Negative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender,
Borrowers covenant that, unless Lender has first consented
thereto in writing, they will not:
8.2.1 Mergers; Consolidations; Acquisitions. Merge or
consolidate, or permit any Subsidiary of any Borrower to merge
or consolidate, with any Person; nor acquire, nor permit any
of its Subsidiaries to acquire, all or any substantial part of
the Properties of any Person, unless prior to the consummation
of any such merger, consolidation or acquisition, Lender has
consented in writing to such transaction, which consent shall
not be unreasonably withheld or delayed.
8.2.2 Loans. Except as provided in Section 8.2.7
hereof, make, or permit any Subsidiary of any Borrower to
make, any loans or other advances of money (other than for
salary, travel advances, advances against commissions and
other similar advances in the ordinary course of business) to
any Person, except that if after giving effect to any such
loan or advance, there is no existing and continuing Default
or Event of Default and Availability exceeds One Million
Dollars ($1,000,000), then EPI may make loans and advances to
PPI and/or APP and PPI and/or APP may make loans and advances
to EPI.
8.2.3 Total Indebtedness. Create, incur, assume, or
suffer to exist, or permit any Subsidiary of any Borrower to
create, incur or suffer to exist, any Indebtedness, except:
(i) Obligations owing to Lender;
(ii) Subordinated Debt outstanding in respect to
and the Subordinated Debt Documents;
(iii) Indebtedness of any Subsidiary of any
Borrower to such Borrower;
(iv) accounts payable to trade creditors and current
operating expenses (other than for Money Borrowed) which are not aged
more than 30 days from the due date, in each case incurred in the
ordinary course of business and paid within such time period, unless
the same are being actively contested in good faith and by appropriate
and lawful proceedings; and the applicable Borrowers or such Subsidiary
shall have set aside such reserves, if any, with respect thereto as are
required by GAAP and deemed adequate by the applicable Borrower or such
Subsidiary and its independent accountants;
(v) Obligations to pay Rentals permitted by
subsection 8.2.13;
(vi) Permitted Purchase Money Indebtedness;
(vii) contingent liabilities arising out of
endorsements of checks and other negotiable instruments for deposit or
collection in the ordinary course of business;
(viii) Indebtedness of EPI to PPI and/or APP
or Indebtedness of PPI and/or APP to EPI, to the extent any such
Borrower was permitted to make such loan or advance pursuant to Section
8.2.2. above;
(ix) Indebtedness outstanding under the Hastings
Documents;
(x) Indebtedness outstanding under the Promissory
Note and Stock Pledge Agreement;
(xi) Indebtedness under Capitalized Leases listed on
Exhibit K;
(xii) Indebtedness incurred in connection with the
acquisition of approximately 30 acres of vacant land in Hembree,
Oregon, in a principal amount not to exceed One Hundred Three Thousand
Dollars ($103,000); and
(xiii) Indebtedness not included in paragraphs (i)
through (xii) above which does not exceed at any time, in the
aggregate, the sum of $250,000.
8.2.4 Affiliate Transactions. Enter into, or be a
party to, or permit any Subsidiary of any Borrower to enter
into or be a party to, any transaction with any Affiliate of
any Borrower or stockholder, except in the ordinary course of
and pursuant to the reasonable requirements of such Borrower's
or such Subsidiary's business and upon fair and reasonable
terms which are fully disclosed to Lender and are no less
favorable to such Borrower than what would be obtainable in a
comparable arm's length transaction with a Person not an
Affiliate or stockholder of any Borrower or such Subsidiary.
8.2.5 Limitation on Liens. Create or suffer to exist,
or permit any Subsidiary of any Borrower to create or suffer
to exist, any Lien upon any of its Property, income or
profits, whether now owned or hereafter acquired, except:
(i) Liens at any time granted in favor of Lender;
(ii) Liens for taxes (excluding any Lien imposed
pursuant to any of the provisions of ERISA) not yet due, or being
contested in the manner described in subsection 7.1.14 hereto, but only
if in Lender's judgment such Lien does not adversely affect Lender's
rights or the priority of Lender's Lien in the Collateral;
(iii) Liens arising in the ordinary course of any
Borrower's business by operation of law or regulation, but only if
payment in respect of any such Lien is not at the time required and
such Liens do not, in the aggregate, materially detract from the value
of the Property of any Borrower or materially impair the use thereof in
the operation of any Borrower's business;
(iv) Purchase Money Liens securing Permitted Purchase
Money Indebtedness;
(v) Liens securing Indebtedness of one of the
Borrowers' Subsidiaries to any Borrower or another such Subsidiary;
(vi) such other Liens as appear on Exhibit P hereto;
(vii) Liens on approximately 30 acres of vacant land
in Hembree, Oregon, securing the Indebtedness described in Section
8.2.3(xii);
(viii) Liens securing Indebtedness outstanding under
that certain Redevelopment Contract between the City of Hastings,
Nebraska and EPI and related notes, documents and agreements; and
(ix) such other Liens as Lender may hereafter approve
in writing.
8.2.6 Subordinated Debt and Other Indebtedness. Make,
or permit any Subsidiary of any Borrower to make, any payment
or repurchase of any part or all of any Subordinated Debt or
take any other action or omit to take any other action in
respect of any Subordinated Debt, except in accordance with
the Intercreditor and Subordination Agreement relative thereto
or other subordination agreement relative thereto. Except for
regularly scheduled (as of the Closing Date) payments of
principal and interest, make or permit any Subsidiary of any
Borrower to make any payment or repurchase of any part or all
of any of the Indebtedness outstanding under the Hastings
Documents or the Promissory Note and Stock Pledge Agreement.
Amend or modify any of the Subordinated Debt Documents, the
Hastings Documents or the Promissory Note and Stock Pledge
Agreement in any manner adverse to Borrower or Lender. The
foregoing notwithstanding:
(i) Borrower may prepay or repurchase up to Two
Million Dollars ($2,000,000) of the principal amount of the
Indebtedness outstanding under the Subordinated Debt Documents if, (x)
after giving effect to any such prepayment or repurchase, there would
exist and be continuing no Default or Event of Default, (y) immediately
prior to such repayment or repurchase and immediately after such
prepayment or repurchase the outstanding principal balance of the
Revolving Credit Loan is $0, and (z) the funds used to effect such
prepayment or repurchase are not the proceeds of Revolving Credit
Loans; and
(ii) after effecting the prepayment or repurchase
provided for in clause (i) above, Borrowers may prepay or repurchase up
to an additional One Million Five Hundred Thousand Dollars ($1,500,000)
of the principal amount of the Indebtedness outstanding under the
Subordinated Debt Documents if (x) after giving effect to any such
prepayment or repurchase, there would exist and be continuing no
Default or Event of Default, (y) immediately prior to such prepayment
or repurchase the outstanding principal balance of the Revolving Credit
Loan is $0, (z) the funds used to effect such prepayment or repurchase
are not the proceeds of Revolving Credit Loans, and (aa) Lender has
elected in writing not to have the funds to be used to effect such
prepayment or repurchase applied to a prepayment of the outstanding
principal balance of the Term Loan. If Lender does elect to have such
funds be applied to a prepayment of the Term Loan such prepayment shall
be accompanied by the prepayment fee provided for in Section 4.2.3,
shall be applied to installments of principal in inverse order of
maturity, and shall be applied, pro rata, to the outstanding principal
balance of the EPI Term Note, the PPI Term Note and the APP Term Note.
8.2.7 Distributions. Declare or make, or permit any
Subsidiary of any Borrower to declare or make, any
Distributions; provided, however, that:
(a) immediately after the closing of the transactions
contemplated hereby, Borrowers may make Distributions to Company in an
amount not to exceed Four Million Twenty Thousand Dollars ($4,020,000)
in order to permit Company to repay Four Million Twenty Thousand
Dollars ($4,020,000) of Indebtedness owed under the Subordinated Debt
Documents;
(b) EPI may make distributions to Company to permit
Company to purchase or redeem shares of EPI's common stock, $0.01, par
value, if (i) the aggregate purchase price for all such shares of
common stock does not exceed (x) Five Hundred Seventy-Five Thousand
Dollars ($575,000) for the period ending December 31, 1996 and (y) the
lesser of the purchase price per share of such common stock multiplied
by 157,000 shares of such common stock or $1,000,000 for each of the
periods ending December 31, 1997 and December 31, 1998; and (ii) after
giving effect to any such purchase there exists and is continuing no
Default or Event of Default;
(c) Borrowers may make Distributions to the Company
to allow the Company to pay dividends on the Company's preferred stock
if after giving effect to any such Distribution there exists and is
continuing no Default or Event of Default;
(d) APP may make Distributions to PPI;
(e) Borrowers may make Distributions or loans to the
Company to (i) pay general operating expenses, provided such
Distributions do not exceed $300,000 on an annual basis, and (ii) pay
costs and expenses incurred by Blair in completing the transactions
contemplated hereunder;
(f) If after giving effect to any such Distribution
there would exist no Default or Event of Default, EPI and PPI may make
Distributions to Company in amounts sufficient to permit Company to pay
interest due on Company's Indebtedness outstanding pursuant to the
Indebtedness outstanding pursuant to the Subordinated Debt Documents;
and
(g) Any Borrower may make Distributions to Company to
permit Company to prepay or repurchase Indebtedness outstanding under
the Subordinated Debt Documents if such repurchase or prepayment is
permitted pursuant to Section 8.2.6 above.
8.2.8 Capital Expenditures. Make Capital Expenditures
(including, without limitation, by way of capitalized leases)
which, in the aggregate, as to Borrowers and their respective
Subsidiaries during any fiscal year of Borrowers exceeds the
amount set forth opposite such fiscal year in the following
schedule:
Fiscal Year Ending Permitted Capital Expenditure
------------------ -----------------------------
December 31, 1996 $2,600,000
December 31, 1997 $1,500,000
December 31, 1998 and each $1,500,000
subsequent fiscal year
8.2.9 Disposition of Assets. Sell, lease or otherwise
dispose of any of, or permit any Subsidiary of any Borrower to
sell, lease or otherwise dispose any of, its Properties,
including any disposition of Property as part of a sale and
leaseback transaction, to or in favor of any Person, except
(i) sales of Inventory in the ordinary course of business for
so long as no Event of Default exists hereunder, (ii) a
transfer of Property to any Borrower by a Subsidiary of such
Borrower or (iii) dispositions expressly authorized by this
Agreement.
8.2.10 Stock of Subsidiaries. Permit any of their
respective Subsidiaries to issue any additional shares of its
capital stock except director's qualifying shares.
8.2.11 Bill-and-Hold Sales, Etc. Make a sale to any
customer on a bill-and-hold, guaranteed sale, sale and return,
sale on approval or consignment basis, or any sale on a
repurchase or return basis.
8.2.12 Restricted Investment. Except as otherwise
permitted by Section 8.2.2, make or have, or permit any
Subsidiary of any Borrower to make or have, any Restricted
Investment.
8.2.13 Leases. Become, or permit any of their
respective Subsidiaries to become, a lessee under any
operating lease (other than a lease under which any Borrower
or any of their respective Subsidiaries is lessor) of Property
if the aggregate Rentals payable during any current or future
period of 12 consecutive months under the lease in question
and all other leases under which Borrowers or any of their
respective Subsidiaries is then lessee would exceed $500,000.
The term "Rentals" means, as of the date of determination, all
payments which the lessee is required to make by the terms of
any lease.
8.2.14 Tax Consolidation. File or consent to the
filing of any consolidated income tax return with any Person
other than a Subsidiary of any Borrower or Company.
8.3 Specific Financial Covenants. During the term of this
Agreement, and thereafter for so long as there are any
Obligations to Lender, Borrower covenants that, unless
otherwise consented to by Lender in writing, it shall:
8.3.1 Minimum Consolidated Adjusted Tangible Net
Worth. Maintain at all times within each of the following
periods, a Consolidated Adjusted Tangible Net Worth of not
less than the amount shown below for the period corresponding
thereto:
Period Amount
- ------ ------
June 30, 1996 through and
including September 29, 1996 ($1,000,000)
September 30, 1996 through and
including December 30, 1996 ($100,000)
December 31, 1996 through and
including March 30, 1997 $200,000
March 31, 1997 through and
including June 29, 1997 $300,000
June 30, 1997 through and
including September 29, 1997 $1,300,000
September 30, 1997 through and
including December 30, 1997 $2,200,000
December 31, 1997 through and
including March 30, 1998 $2,500,000
March 31, 1998 through and
including June 29, 1998 $2,600,000
June 30, 1998 through and
including September 29, 1998 $3,600,000
September 30, 1998 through and
including December 30, 1998 $4,500,000
December 31, 1998 through and
including March 30, 1999 $4,800,000
March 31, 1999 through and
including each fiscal quarter thereafter $4,900,000
8.3.2 Consolidated Net Cash Flow. Achieve
Consolidated Net Cash Flow for each of the periods listed
below equal to or greater than the amount set forth opposite
such period:
Net Cash Flow Amount
- ------------- ------
January 1, 1996 through and
including June 30, 1996 $150,000
January 1, 1996 through and
including September 30, 1996 $650,000
January 1, 1996 through and
including December 31, 1996 $500,000
January 1, 1997 through and
including March 31, 1997 ($500,000)
January 1, 1997 through and
including June 30, 1997 $150,000
January 1, 1997 through and
including September 30, 1997 $650,000
January 1, 1997 through and
including December 31, 1997 $500,000
January 1, 1998 through and
including March 31, 1998 ($500,000)
January 1, 1998 through and
including June 30, 1998 $150,000
January 1, 1998 through and
including September 30, 1998 $650,000
January 1, 1998 through and
including December 31, 1998 $500,000
January 1, 1999 through and
including March 31, 1999 ($500,000)
8.3.3 Senior Interest Coverage Ratio. Achieve, at the
end of each fiscal quarter within the term hereof a Senior
Interest Coverage Ratio equal to or greater than the ratio
shown below for the quarter corresponding thereto:
Each Fiscal Quarter Ending Ratio
- -------------------------- -----
March 31 1.65 to 1
June 30 3.50 to 1
September 30 4.50 to 1
December 31 2.40 to 1
SECTION 9. CONDITIONS PRECEDENT
Notwithstanding any other provision of this Agreement or any
of the other Loan Documents, and without affecting in any
manner the rights of Lender under the other sections of this
Agreement, Lender shall not be required to make any Loan under
this Agreement unless and until each of the following
conditions has been and continues to be satisfied:
9.1 Documentation. Lender shall have received, in form and
substance satisfactory to Lender and its counsel, a duly
executed copy of this Agreement and the other Loan Documents,
together with such additional documents, instruments and
certificates as Lender and its counsel shall require in
connection therewith from time to time, including all
documents, instruments, agreements and schedules listed in the
Schedule of Documents attached hereto and incorporated herein
as Exhibit Q, all in form and substance satisfactory to Lender
and its counsel.
9.2 No Default. No Default or Event of Default shall exist.
9.3 Other Loan Documents. Each of the conditions precedent set
forth in the other Loan Documents shall have been satisfied.
9.4 Equity. Lender shall have received evidence satisfactory to it
that not less than One Million Five Hundred Thousand Dollars
($1,500,000) in cash has been contributed as common equity to
the capital of Company.
9.5 Subordinated Debt. Lender shall have received evidence
satisfactory to it that Blair, Company and Borrowers have
executed and delivered the Amendment Agreement and that the
Amendment Agreement will be in full force and effect upon the
payment contemplated by Section 8.2.7 hereof. The terms and
conditions of the Amendment Agreement shall be acceptable to
Lender. Lender shall have received evidence satisfactory to it
that, as of the Closing Date, at least Four Million Five
Hundred Thousand Dollars ($4,500,000) shall remain outstanding
under the Subordinated Debt Documents.
9.6 Availability. Lender shall have determined that immediately
after Lender has made the initial Loans contemplated hereby,
and paid all closing costs incurred in connection with the
transactions contemplated hereby, Availability shall not be
less than Two Million Dollars ($2,000,000).
9.7 No Litigation. No action, proceeding, investigation,
regulation or legislation shall have been instituted,
threatened or proposed before any court, governmental agency
or legislative body to enjoin, restrain or prohibit, or to
obtain damages in respect of, or which is related to or arises
out of this Agreement or the consummation of the transactions
contemplated hereby.
9.8 Net Operating Carry Forward. Lender shall have received
evidence satisfactory to it from the Company and its counsel
that Company's net operating loss carry forward shall be
available to be applied against Company's and Borrowers'
consolidated taxable income for each tax year within the term
hereof in a manner consistent with projections provided to
Lender prior to the Closing.
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
10.1 Events of Default. The occurrence of one or more of the
following events shall constitute an "Event of Default":
10.1.1 Payment of Interest, Principal and Fees.
Borrowers shall fail to pay any interest or principal due in
respect to outstanding Revolving Credit Loans, the Term Loan
or any fees payable in respect to unused Revolving Credit
Loans on the due date thereof (whether due at stated maturity,
on demand, upon acceleration or otherwise).
10.1.2 Payment of Other Obligations. Borrowers shall
fail to pay any of the Obligations (other than interest and
principal due in respect to outstanding Revolving Credit
Loans, the Term Loan or any fees payable in respect to unused
Revolving Credit Loans) on or within five (5) days after the
due date for such Obligation (whether due at stated maturity,
on demand, upon acceleration or otherwise).
10.1.3 Misrepresentations. Any representation,
warranty or other statement made or furnished to Lender by or
on behalf of Company, Borrowers, any Subsidiary of any
Borrower in this Agreement, any of the other Loan Documents or
any instrument, certificate or financial statement furnished
in compliance with or in reference thereto proves to have been
false or misleading in any material respect when made or
furnished or when reaffirmed pursuant to Section 7.2 hereof.
10.1.4 Breach of Specific Covenants. Borrowers shall
fail or neglect to perform, keep or observe any covenant
contained in Sections 5.2, 5.3, 6.1.1, 6.2, 8.1.1, 8.1.3, 8.2
or 8.3 hereof on the date that Borrowers are required to
perform, keep or observe such covenant.
10.1.5 Breach of Other Covenants. Borrowers shall
fail or neglect to perform, keep or observe any covenant
contained in this Agreement (other than a covenant which is
dealt with specifically elsewhere in Section 10.1 hereof) and
the breach of such other covenant is not cured to Lender's
satisfaction within five (5) days after the sooner to occur of
any Borrower's receipt of notice of such breach from Lender or
the date on which such failure or neglect first becomes known
to any officer of any Borrower; provided, however, that if a
cure cannot be effected within such five (5) day period,
Borrowers shall have ten (10) additional days to effect such
cure if during such ten-day period Borrowers are diligent in
pursuing such a cure.
10.1.6 Default Under Security Documents/Other
Agreements. Any event of default shall occur under, or any
Borrower shall default in the performance or observance of any
term, covenant, condition or agreement contained in, any of
the Security Documents or the Other Agreements and such
default shall continue beyond any applicable grace period.
10.1.7 Other Defaults. There shall occur any default
or event of default on the part of any Borrower under any
agreement, document or instrument to which any Borrower is a
party or by which any Borrower or any of its Property is
bound, creating or relating to any Indebtedness (other than
the Obligations) if the payment or maturity of such
Indebtedness is accelerated in consequence of such event of
default or demand for payment of such Indebtedness is made.
10.1.8 Uninsured Losses. Any material loss, theft,
damage or destruction of any of the Collateral not fully
covered (subject to such deductibles as Lender shall have
permitted) by insurance.
10.1.9 Intentionally Omitted.
10.1.10 Insolvency and Related Proceedings. Any
Borrower or Company shall cease to be Solvent or shall suffer
the appointment of a receiver, trustee, custodian or similar
fiduciary, or shall make an assignment for the benefit of
creditors, or any petition for an order for relief shall be
filed by or against any Borrower or Company under the
Bankruptcy Code (if against any Borrower or Company, the
continuation of such proceeding for more than 30 days), or any
Borrower or Company shall make any offer of settlement,
extension or composition to their respective unsecured
creditors generally.
10.1.11 Business Disruption: Condemnation. There
shall occur a cessation of a substantial part of the business
of any Borrower, any Subsidiary of any Borrower or Company for
a period which significantly affects any Borrower's or
Company's capacity to continue its business, on a profitable
basis; or any Borrower, any Subsidiary of any Borrower or
Company shall suffer the loss or revocation of any license or
permit now held or hereafter acquired by any Borrower or
Company which is necessary to the continued or lawful
operation of its business; or any Borrower or Company shall be
enjoined, restrained or in any way prevented by court,
governmental or administrative order from conducting all or
any material part of its business affairs; or any material
lease or agreement pursuant to which any Borrower or Company
leases, uses or occupies any Property shall be canceled or
terminated prior to the expiration of its stated term; or any
part of the Collateral shall be taken through condemnation or
the value of such Property shall be impaired through
condemnation.
10.1.12 Change of Ownership. PPI shall cease to own
and control, beneficially and of record, all of the issued and
outstanding capital stock of APP; Company shall cease to own
and control, beneficially and of record, all of the issued and
outstanding capital stock of PPI and at least ninety-two
percent (92%) of the issued and common stock of EPI; or The
Spell Group shall cease to own and control, beneficially and
of record, at least ten percent (10%) of the issued and
outstanding capital stock of Company, on a fully diluted basis
after giving effect to the exercise of all options and
warrants and the conversion of the common stock of EPP and
warrants and options for the common stock of EPI into common
stock of the Company.
10.1.13 ERISA. A Reportable Event shall occur which
Lender, in its sole discretion, shall determine in good faith
constitutes grounds for the termination by the Pension Benefit
Guaranty Corporation of any Plan or for the appointment by the
appropriate United States district court of a trustee for any
Plan, or if any Plan shall be terminated or any such trustee
shall be requested or appointed, or if any Borrower, any
Subsidiary of any Borrower or Company is in "default" (as
defined in Section 4219(c)(5) of ERISA) with respect to
payments to a Multiemployer Plan resulting from any
Borrower's, such Subsidiary's or Company complete or partial
withdrawal from such Plan.
10.1.14 Challenge to Agreement. Any Borrower, any
Subsidiary of any Borrower or Company, or any Affiliate of any
of them, shall challenge or contest in any action, suit or
proceeding the validity or enforceability of this Agreement,
or any of the other Loan Documents, the legality or
enforceability of any of the Obligations or the perfection or
priority of any Lien granted to Lender.
10.1.15 Criminal Forfeiture. Any Borrower, any
Subsidiary of any Borrower or Company shall be criminally
indicted or convicted under any law that could lead to a
forfeiture of any Property of any Borrower, any Subsidiary of
any Borrower or Company.
10.1.16 Judgments. Final judgment or judgments (after
the expiration of all times to appeal therefrom) for the
payment of money in excess of $50,000 in the aggregate shall
be rendered against any Borrower or Company and the same shall
not (i) be fully covered by insurance or other comparable
bond, or (ii) within thirty days after the entry thereof, have
been discharged or execution thereof stayed pending appeal, or
shall not have been discharged within five days after the
expiration of any such stay.
10.2 Acceleration of the Obligations. Without in any way limiting
the right of Lender to demand payment of any portion of the
Obligations payable on demand in accordance with Section 3.2
hereof, upon or at any time during the continuance of an Event
of Default, all or any portion of the Obligations shall, at
the option of Lender and without presentment, demand protest
or further notice by Lender, become at once due and payable
and Borrowers shall forthwith pay to Lender, the full amount
of such Obligations, provided, that upon the occurrence of an
Event of Default specified in subsection 10.1.10 hereof, all
of the Obligations shall become automatically due and payable
without declaration, notice or demand by Lender.
10.3 Other Remedies. Upon and during the continuance of an Event of
Default, Lender shall have and may exercise from time to time
the following rights and remedies:
10.3.1 All of the rights and remedies of a secured
party under the Code or under other applicable law, and all
other legal and equitable rights to which Lender may be
entitled, all of which rights and remedies shall be cumulative
and shall be in addition to any other rights or remedies
contained in this Agreement or any of the other Loan
Documents, and none of which shall be exclusive.
10.3.2 The right to take immediate possession of the
Collateral, and to (i) require Borrower to assemble the
Collateral, at Borrowers' expense, and make it available to
Lender at a place designated by Lender which is reasonably
convenient to both parties, and (ii) enter any premises where
any of the Collateral shall be located and to keep and store
the Collateral on said premises until sold (and if said
premises be the Property of any Borrower, Borrowers agree not
to charge Lender for storage thereof).
10.3.3 The right to sell or otherwise dispose of all
or any Collateral in its then condition, or after any further
manufacturing or processing thereof, at public or private sale
or sales, with such notice as may be required by law, in lots
or in bulk, for cash or on credit, all in a commercially
reasonable manner. Borrowers agree that 10 days written notice
to Borrowers of any public or private sale or other
disposition of Collateral shall be reasonable notice thereof,
and such sale shall be at such locations as Lender may
designate in said notice. Lender shall have the right to
conduct such sales on any Borrower's premises, without charge
therefor, and such sales may be adjourned from time to time in
accordance with applicable law. Lender shall have the right to
sell, lease or otherwise dispose of the Collateral, or any
part thereof, for cash, credit or any combination thereof, and
Lender may purchase all or any part of the Collateral at
public or, if permitted by law, private sale and, in lieu of
actual payment of such purchase price, may set off the amount
of such price against the Obligations. The proceeds realized
from the sale of any Collateral may be applied, after allowing
2 Business Days for collection, first to the costs, expenses
and attorneys' fees incurred by Lender in collecting the
Obligations, in enforcing the rights of Lender under the Loan
Documents and in collecting, retaking, completing, protecting,
removing, storing, advertising for sale, selling and
delivering any Collateral, second to the interest due upon any
of the Obligations; third, to the principal of the
Obligations; and fourth to the Borrowers or as otherwise
directed by a court of competent jurisdiction. If any
deficiency shall arise, Borrowers shall remain liable to
Lender therefor.
10.3.4 Lender is hereby granted a license or other
right to use, without charge, Borrower's labels, patents,
copyrights, rights of use of any name, trade secrets,
tradenames, trademarks and advertising matter, or any Property
of a similar nature, as it pertains to the Collateral, in
advertising for sale and selling any Collateral and Borrower's
rights under all licenses and all franchise agreements shall
inure to Lender's benefit.
10.4 Remedies Cumulative; No Waiver. All covenants, conditions,
provisions, warranties, guaranties, indemnities, and other
undertakings of Borrowers contained in this Agreement and the
other Loan Documents, or in any document referred to herein or
contained in any agreement supplementary hereto or in any
schedule or in any Guaranty Agreement given to Lender or
contained in any other agreement between Lender and Borrowers,
heretofore, concurrently, or hereafter entered into, shall be
deemed cumulative to and not in derogation or substitution of
any of the terms, covenants, conditions, or agreements of
Borrowers herein contained. The failure or delay of Lender to
require strict performance by Borrowers of any provision of
this Agreement or to exercise or enforce any rights, Liens,
powers, or remedies hereunder or under any of the aforesaid
agreements or other documents or security or Collateral shall
not operate as a waiver of such performance, Liens, rights,
powers and remedies, but all such requirements, Liens, rights,
powers, and remedies shall continue in full force and effect
until all Loans and all other Obligations owing or to become
owing from Borrowers to Lender shall have been fully
satisfied. None of the undertakings, agreements, warranties,
covenants and representations of Borrowers contained in this
Agreement or any of the other Loan Documents and no Event of
Default by Borrowers under this Agreement or any other Loan
Documents shall be deemed to have been suspended or waived by
Lender, unless such suspension or waiver is by an instrument
in writing specifying such suspension or waiver and is signed
by a duly authorized representative of Lender and directed to
Borrower.
SECTION 11. MISCELLANEOUS
11.1 Power of Attorney. Borrowers hereby irrevocably designate,
make, constitute and appoint Lender (and all Persons
designated by Lender) as Borrowers' true and lawful attorney
(and agent-in-fact) and Lender, or Lender's agent, may,
without notice to Borrowers and in any Borrowers' or Lender's
name, but at the cost and expense of Borrowers:
11.1.1 At such time or times upon or during the
continuation of a Default or an Event of Default as Lender or
said agent, in its sole discretion, may determine, endorse
Borrowers' name on any checks, notes, acceptances, drafts,
money orders or any other evidence of payment or proceeds of
the Collateral which come into the possession of Lender or
under Lender's control; provided that Lender may at any time
endorse any Borrower's name on any checks, notes, acceptance,
drafts, money orders or other evidence of payment in order to
effect the deposit of such items in a Dominion Account.
11.1.2 At such time or times upon or during the
continuation of an Event of Default as Lender or its agent in
its sole discretion may determine: (i) demand payment of the
Accounts from the Account Debtors, enforce payment of the
Accounts by legal proceedings or otherwise, and generally
exercise all of Borrowers' rights and remedies with respect to
the collection of the Accounts; (ii) settle, adjust,
compromise, discharge or release any of the Accounts or other
Collateral or any legal proceedings brought to collect any of
the Accounts or other Collateral; (iii) sell or assign any of
the Accounts and other Collateral upon such terms, for such
amounts and at such time or times as Lender deems advisable;
(iv) take control, in any manner, of any item of payment or
proceeds relating to any Collateral; (v) prepare, file and
sign Borrowers' name to a proof of claim in bankruptcy or
similar document against any Account Debtor or to any notice
of lien, assignment or satisfaction of lien or similar
document in connection with any of the Collateral; (vi)
receive, open and deal with all mail addressed to Borrowers
and to notify postal authorities to change the address for
delivery thereof to such address as Lender may designate;
(vii) endorse the name of Borrowers upon any of the items of
payment or proceeds relating to any Collateral and deposit the
same to the account of Lender on account of the Obligations;
(viii) endorse the name of Borrowers upon any chattel paper,
document, instrument, invoice, freight bill, bill of lading or
similar document or agreement relating to the Accounts,
Inventory and any other Collateral; (ix) use any Borrower's
stationery and sign the name of any Borrower to verifications
of the Accounts and notices thereof to Account Debtors; (x)
use the information recorded on or contained in any data
processing equipment and computer hardware and software
relating to the Accounts, Inventory, Equipment and any other
Collateral; (xi) make and adjust claims under policies of
insurance; and (xii) do all other acts and things necessary,
in Lender's determination, to fulfill Borrowers' obligations
under this Agreement.
11.2 Indemnity. Borrowers hereby agree to indemnify Lender and hold
Lender harmless from and against any liability, loss, damage,
suit, action or proceeding ever suffered or incurred by Lender
(including reasonable attorneys fees and legal expenses) as
the result of Borrowers' failure to observe, perform or
discharge Borrowers' duties hereunder; provided, however,
Borrowers shall have no obligation to indemnify Lender for any
losses, costs, damages, penalties, forfeitures, claims or
expenses arising from Lender's gross negligence or wilful
misconduct. In addition, Borrowers shall defend Lender against
and save it harmless from all claims of any Person with
respect to the Collateral. Without limiting the generality of
the foregoing, these indemnities shall extend to any claims
asserted against Lender by any Person under any Environmental
Laws or similar laws by reason of Borrowers' or any other
Person's failure to comply with laws applicable to solid or
hazardous waste materials or other toxic substances.
Notwithstanding any contrary provision in this Agreement, the
obligation of Borrowers under this Section 11.2 shall survive
the payment in full of the Obligations and the termination of
this Agreement.
11.3 Modification of Agreement; Sale of Interest. This Agreement
may not be modified, altered or amended, except by an
agreement in writing signed by Borrowers and Lender. Borrowers
may not sell, assign or transfer any interest in this
Agreement, any of the other Loan Documents, or any of the
Obligations, or any portion thereof, including, without
limitation, Borrowers' rights, title, interests, remedies,
powers, and duties hereunder or thereunder. Borrowers hereby
consent to Lender's participation, sale, assignment, transfer
or other disposition, at any time or times hereafter, of this
Agreement and any of the other Loan Documents, or of any
portion hereof or thereof, including, without limitation,
Lender's rights, title, interests, remedies, powers, and
duties hereunder or thereunder [and any such participation,
sale, assignment, transfer or other disposition shall be at
Lender's sole cost and expense.] In the case of an assignment,
the assignee shall have, to the extent of such assignment, the
same rights, benefits and obligations as it would if it were
"Lender" hereunder and Lender shall be relieved of all
obligations hereunder upon any such assignments. Borrowers
agree that they will use their best efforts to assist and
cooperate with Lender in any manner reasonably requested by
Lender to effect the sale of participations in or assignments
of any of the Loan Documents or any portion thereof or
interest therein, including, without limitation, assisting in
the preparation of appropriate disclosure documents at no
out-of-pocket cost to Borrowers. Borrowers further agree that
Lender may disclose credit information regarding Borrowers and
their respective Subsidiaries to any potential participant or
assignee.
11.4 Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision
of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining
provisions of this Agreement.
11.5 Successors and Assigns. This Agreement, the Other Agreements
and the Security Documents shall be binding upon and inure to
the benefit of the successors and assigns of Borrowers and
Lender permitted under Section 11.3 hereof.
11.6 Cumulative Effect; Conflict of Terms. The provisions of the
Other Agreements and the Security Documents are hereby made
cumulative with the provisions of this Agreement. Except as
otherwise provided in Section 3.2 hereof and except as
otherwise provided in any of the other Loan Documents by
specific reference to the applicable provision of this
Agreement, if any provision contained in this Agreement is in
direct conflict with, or inconsistent with, any provision in
any of the other Loan Documents, the provision contained in
this Agreement shall govern and control.
11.7 Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and
delivered shall be deemed to be an original and all of which
counterparts taken together shall constitute but one and the
same instrument.
11.8 Notice. Except as otherwise provided herein, all notices,
requests and demands to or upon a party hereto, to be
effective, shall be in writing and shall be sent by certified
or registered mail, return receipt requested, by personal
delivery against receipt, by overnight courier or by facsimile
and, unless otherwise expressly provided herein, shall be
deemed to have been validly served, given or delivered
immediately when delivered against receipt, one Business Day
after deposit in the mail, postage prepaid, or with an
overnight courier or, in the case of facsimile notice, when
sent, addressed as follows:
If to Lender: Fleet Capital Corporation
20800 Swenson Drive
Suite 350
Waukesha, WI 53186
Attention: Sandra Evans
Facsimile No.: (414) 798-4882
With a copy to: Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Suite 2600
Chicago, IL 60601
Attention: John T. McEnroe
Facsimile No.: (312) 609-5005
If to Borrowers: Eagle Pacific Industries, Inc.
2430 Lincoln Centre
333 South Seventh Street
Minneapolis, MN 55402
Attention: William Spell, President and COO
Facsimile No.: (612) 371-9651
With a copies to: Eagle Plastics, Inc.
146 North Maple
Hastings, Nebraska 68902
Attention: Pat Mertens
Facsimile No.: (402) 461-3343
and
Fredrickson & Byron, P.A.
900 Second Avenue South
1100 International Centre
Minneapolis, MN 55402
Attention: Dobson West and
Lynn Gardin
Facsimile No.: (612) 347-7077
or to such other address as each party may designate for itself by notice given
in accordance with this Section 11.8; provided, however, that
any notice, request or demand to or upon Lender pursuant to
subsection 3.1.1 or 4.2.2 hereof shall not be effective until
received by Lender.
11.9 Lender's Consent. Except as may be otherwise expressly
provided, whenever Lender's consent is required to be obtained
under this Agreement, any of the Other Agreements or any of
the Security Documents as a condition to any action, inaction,
condition or event, Lender shall be authorized to give or
withhold such consent in its sole and absolute discretion and
to condition its consent upon the giving of additional
collateral security for the Obligations, the payment of money
or any other matter.
11.10 Credit Inquiries. Borrowers hereby authorize and permit Lender
to respond to usual and customary credit inquiries from third
parties concerning Borrowers or any of its Subsidiaries.
11.11 Time of Essence. Time is of the essence of this Agreement, the
Other Agreements and the Security Documents.
11.12 Entire Agreement. This Agreement and other Loan Documents,
together with all other instruments, agreements and
certificates executed by the parties in connection therewith
or with reference thereto, embody the entire understanding and
agreement between the parties hereto and thereto with respect
to the subject matter hereof and thereof and supersede all
prior agreements, understandings and inducements, whether
express or implied, oral and written.
11.13 Interpretation. No provision of this Agreement or any of the
other Loan Documents shall be construed against or interpreted
to the disadvantage of any party hereto by any court or other
governmental or judicial authority by reason of such party
having or being deemed to have structured or dictated such
provision.
11.14 GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO
HAVE BEEN MADE IN CHICAGO, ILLINOIS. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF ILLINOIS: PROVIDED, HOWEVER, THAT IF ANY OF THE
COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN
ILLINOIS, THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE
METHOD, MANNER AND PROCEDURE AND FORECLOSURE OF LENDER'S LIEN
UPON SUCH COLLATERAL AND THE ENFORCEMENT OF LENDER'S OTHER
REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE
LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT
WITH THE LAWS OF ILLINOIS. AS PART OF THE CONSIDERATION FOR
NEW VALUE RECEIVED, AND REGARDLESS OF ANY PRESENT OR FUTURE
DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF BORROWERS OR
LENDER, BORROWERS HEREBY CONSENT AND AGREE THAT THE CIRCUIT
COURT OF COOK COUNTY, ILLINOIS, OR, AT LENDER'S OPTION, THE
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
ILLINOIS, EASTERN DIVISION, SHALL HAVE EXCLUSIVE JURISDICTION
TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWERS
AND LENDER PERTAINING TO THIS AGREEMENT OR TO ANY MATTER
ARISING OUT OF OR RELATED TO THIS AGREEMENT. BORROWERS
EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH JURISDICTION
IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND
BORROWERS HEREBY WAIVE ANY OBJECTION WHICH BORROWERS MAY HAVE
BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON CONVENIENS AND HEREBY CONSENT TO THE GRANTING OF
SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY
SUCH COURT. BORROWERS HEREBY WAIVE PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION
OR SUIT AND AGREE THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND
OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO BORROWERS AT THE ADDRESS SET FORTH IN THIS
AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED
UPON THE ACTUAL RECEIPT THEREOF. NOTHING IN THIS AGREEMENT
SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF LENDER TO
SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR
TO PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OR ORDER
OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS
AGREEMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR
JURISDICTION.
11.15 WAIVERS BY BORROWER. BORROWERS WAIVE (i) THE RIGHT TO TRIAL BY
JURY (WHICH LENDER HEREBY ALSO WAIVES) IN ANY ACTION, SUIT,
PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR
RELATED TO ANY OF THE LOAN DOCUMENTS, THE OBLIGATIONS OR THE
COLLATERAL: (ii) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF
PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY, RELEASE,
COMPROMISE SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL
COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS,
INSTRUMENTS CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY
LENDER ON WHICH BORROWERS MAY IN ANY WAY BE LIABLE AND HEREBY
RATIFIES AND CONFIRMS WHATEVER LENDER MAY DO IN THIS REGARD
(OTHER THAN IN RESPECT OF LENDER'S ACTS OF GROSS NEGLIGENCE OR
WILFUL MISCONDUCT); (iii) NOTICE PRIOR TO TAKING POSSESSION OR
CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT
BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE
ANY OF LENDER'S REMEDIES; (iv) THE BENEFIT OF ALL VALUATION,
APPRAISEMENT AND EXEMPTION LAWS; AND (v) NOTICE OF ACCEPTANCE
HEREOF. BORROWERS ACKNOWLEDGE THAT THE FOREGOING WAIVERS ARE A
MATERIAL INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT
AND THAT LENDER IS RELYING UPON THE FOREGOING WAIVERS IN ITS
FUTURE DEALINGS WITH BORROWERS. BORROWERS WARRANT AND
REPRESENT THAT THEY HAVE REVIEWED THE FOREGOING WAIVERS WITH
THEIR LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED
ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
11.16 Publicity. Borrowers hereby consent to Lender's use of the
name or tradestyle of Borrowers in any announcements or
advertisements relating to the completion of the transactions
contemplated hereby and the role played by Lender in providing
financing to Borrowers hereunder in such media and in such
manner as Lender, in its sole discretion, determines.
11.17 Reimbursement. The undertaking by Borrowers to repay the
Obligations and each representation, warranty or covenant of
Borrowers are and shall be joint and several. To the extent
that any Borrower shall be required to pay a portion of the
Obligations which shall exceed the amount of loans, advances
or other extensions of credit received by any such Borrower
and all interest, costs, fees and expenses attributable to
such loans, advances or other extensions of credit, then such
Borrower shall be reimbursed by the other Borrower for the
amount of such excess pro rata, based on their respective net
worths as of the date hereof. This Section 11.17 is intended
only to define the relative rights of the Borrowers, and
nothing set forth in Section 11.17 is intended or shall impair
the obligations of each Borrower, jointly and severally, to
pay Lender the Obligations as and when the same shall become
due and payable in accordance with the terms hereof.
IN WITNESS WHEREOF, this Agreement has been duly executed in Chicago,
Illinois, on the day and year specified at the beginning of
this Agreement.
EAGLE PLASTICS, INC.
By:
Name:
Title:
PACIFIC PLASTICS, INC.
By:
Name:
Title:
ARROW PACIFIC PLASTICS, INC.
By:
Name:
Title:
ACCEPTED IN CHICAGO, ILLINOIS:
FLEET CAPITAL CORPORATION
("Lender")
By:
Name: Brian L. Tornow
Title: Vice President
APPENDIX A
GENERAL DEFINITIONS
When used in the Loan and Security Agreement dated as of May 10, 1996,
by and among Fleet Capital Corporation and Eagle Plastics,
Inc., Pacific Plastics, Inc. and Arrow Pacific Plastics, Inc.,
the following terms shall have the following meanings (terms
defined in the singular to have the same meaning when used in
the plural and vice versa):
Account Debtor - any Person who is or may become obligated
under or on account of an Account.
Accounts - all accounts, contract rights, chattel paper,
instruments and documents, whether now owned or hereafter created or
acquired by any Borrower or in which any Borrower now has or hereafter
acquired any interest.
Affiliate - a Person (other than a Subsidiary): (i) which
directly or indirectly through one or more intermediaries controls, or
is controlled by, or is under common control with, a Person; (ii) which
beneficially owns or holds 5% or more of any class of the Voting Stock
of a Person; or (iii) 5% or more of the Voting Stock (or in the case of
a Person which is not a corporation, 5% or more of the equity interest)
of which is beneficially owned or held by a Person or a Subsidiary of a
Person.
Agreement - the Loan and Security Agreement referred to in the
first sentence of this Appendix A, all Exhibits thereto and this
Appendix A.
ALTA Survey - a survey prepared in accordance with the
standards adopted by the American Land Title Association and the
American Congress on Surveying and Mapping in 1986, known as the
"Minimum Standard Detail Requirements of Land Title Surveys". The ALTA
Survey shall be in sufficient form to satisfy the requirements of
Chicago Title Insurance Company to provide extended coverage over
survey defects and shall also show the location of all easements,
utilities, and covenants of record, dimensions of all improvements,
encroachments from any adjoining property, and certify as to the
location of any flood plain area affecting the subject real estate. The
ALTA Survey shall contain the following certification: "To [Name of
Applicable Borrower], Fleet Capital Corporation and Chicago Title
Insurance Company. This is to certify that this map of plat and the
survey on which it is based were made in accordance with the "Minimum
Standard Detail Requirements for Land Title Surveys" jointly
established and adopted by ALTA and ACSM in 1986. (signed (SEAL)
License No. __________".
Amendment Agreement - shall have the meaning contained in the
definition of Subordinated Debt Documents.
APP Borrowing Base - as at any date of determination thereof,
an amount equal to the lesser of:
(i) the remainder of Sixteen Million Five Hundred
Thousand Dollars ($16,500,000) minus the outstanding principal
balance of Revolving Credit Loans made to EPI and PPI; or
(ii) an amount equal to:
(a) up to eighty-five percent 85%, of the
net amount of Eligible Accounts of APP outstanding at
such date;
PLUS
(b) the lesser of (1) Eight Million Dollars
($8,000,000) minus the outstanding principal amount
of Revolving Credit Loans made to EPI and PPI based
on EPI's and PPI's Eligible Inventory; or (2) up to
fifty-five percent (55%), of the value of Eligible
Inventory of APP at such date calculated on the basis
of the lower of cost or market with the cost of raw
materials and finished goods calculated on a
first-in, first-out basis.
For purposes hereof, the net amount of Eligible Accounts of
APP at any time shall be the face amount of such Eligible
Accounts less any and all returns, rebates, discounts (which
may, at Lender's option, be calculated on shortest terms),
credits, allowances or excise taxes of any nature at any time
issued, owing, claimed by Account Debtors, granted,
outstanding or payable in connection with such Accounts at
such time.
APP Term Loan - shall have the meaning contained in Section
1.2.1 of the Agreement.
APP Term Note - the Secured Promissory Note to be executed by
APP on or about the Closing Date in favor of Lender to evidence the APP
Term Loan, which shall be in the form of Exhibit A-3 to the Agreement.
Availability - the aggregate amount of money which Borrowers
are entitled to borrow from time to time as Revolving Credit Loans,
such amount being the difference derived when the sum of the principal
amount of Revolving Credit Loans then outstanding (including any
amounts which Lender may have paid for the account of Borrowers
pursuant to any of the Loan Documents and which have not been
reimbursed by Borrowers) is subtracted from the sum of (x) the EPI
Borrowing Base plus (y) and the PPI Borrowing Base plus (z) the APP
Borrowing Base. If the amount outstanding is equal to or greater than
the sum of (x) the EPI Borrowing Base plus (y) the PPI Borrowing Base
plus (z) the APP Borrowing Base, Availability is 0.
Bank - Fleet National Bank.
Base Rate - the rate of interest announced or quoted by Bank
from time to time as its prime rate for commercial loans, whether or
not such rate is the lowest rate charged by Bank to its most preferred
borrowers; and, if such prime rate for commercial loans is discontinued
by Bank as a standard, a comparable reference rate designated by Bank
as a substitute therefor shall be the Base Rate.
Blair - William Blair Mezzanine Capital Fund, L.P.
Board - the Board of Governors of the Federal Reserve System
of the United States of America.
Borrower Guaranties - The Continuing Guaranty Agreements which
are to be executed by each Borrower in form and substance satisfactory
to Lender.
Business Day - (i) when used with respect to the LIBOR Option,
shall mean a day on which dealings may be effected in deposits of
United States dollars in the London interbank foreign currency deposits
market and on which the Lender is conducting business and on which
banks may conduct business in London, England, Chicago, Illinois, and
New York, New York and (ii) when used with respect to the other
provisions of this Agreement, shall mean any day that is not a
Saturday, a Sunday or a day on which banks are required or permitted to
be closed either in the State of Illinois or in the State of Wisconsin.
Capital Expenditures - expenditures made or liabilities
incurred for the acquisition of any fixed assets or improvements,
replacements, substitutions or additions thereto which have a useful
life of more than one year, including the total principal portion of
Capitalized Lease Obligations.
Capitalized Lease Obligation - any Indebtedness represented by
obligations under a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.
Closing Date - the date on which all of the conditions
precedent in Section 9 of the Agreement are satisfied and the initial
Loan is made under the Agreement.
Code - the Uniform Commercial Code as adopted and in force in
the State of Illinois, as from time to time in effect.
Collateral - all of the Property and interests in Property
described in Section 5 of the Agreement, and all other Property and
interests in Property that now or hereafter secure the payment and
performance of any of the Obligations.
Commitment Termination Date - the earliest of (i) May 9, 1999;
(ii) the date of termination of the Commitment to make further
Revolving Credit Loan pursuant to Section 4.2.1 or 4.2.2 hereof; and
(iii) the date of termination of the Commitment to make further
Revolving Credit Loans pursuant to Section 10.2 hereof.
Company - Eagle Pacific Industries, Inc., a Minnesota
corporation.
Consolidated - the consolidation in accordance with GAAP of
the accounts or other items as to which such term applies.
Consolidated Adjusted Net Earnings From Operations - with
respect to any fiscal period, means the Consolidated net earnings (or
loss) after provision for income taxes for such fiscal period of
Company as reflected on the financial statement of Company supplied to
Lender pursuant to subsection 8.1.3 of the Agreement, but excluding:
(i) any gain or loss arising from the sale of capital
assets;
(ii) any gain arising from any write-up of assets;
(iii) earnings of any Subsidiary of Company or any
Borrower accrued prior to the date it became a Subsidiary;
(iv) earnings of any corporation, substantially all
the assets of which have been acquired in any manner by Company or any
Borrower, realized by such corporation prior to the date of such
acquisition;
(v) net earnings of any business entity (other than a
Subsidiary of any Borrower) in which Company or any Borrower has an
ownership interest unless such net earnings shall have actually been
received by Company or any Borrower in the form of cash distributions;
(vi) any portion of the net earnings of any
Subsidiary of Company or any Borrower which for any reason is
unavailable for payment of dividends to Company or any Borrower;
(vii) the earnings of any Person to which any assets
of Company or any Borrower shall have been sold, transferred of
disposed of, or into which any Borrower shall have merged, or been a
party to any consolidation or other form of reorganization, prior to
the date of such transaction;
(viii) any gain arising from the acquisition or
disposition of any Securities of Company or any Borrower; and
(ix) any gain arising from extraordinary or
non-recurring items.
Consolidated Adjusted Tangible Assets - all Consolidated
assets of Company except: (i) any surplus resulting from any write-up
of assets subsequent to December 31, 1995; (ii) deferred assets,
including all prepaid expenses; (iii) patents, copyrights, trademarks,
trade names, non-compete agreements, franchises and other similar
intangibles; (iv) goodwill, including any amounts, however designated
on a Consolidated balance sheet of a Person or its Subsidiaries,
representing the excess of the purchase price paid for assets or stock
over the value assigned thereto on the books of such Person; (v)
Restricted Investments; (vi) unamortized debt discount and expense;
(vii) assets located outside the United States of America or Mexico and
notes and receivables due from obligors outside of the United States of
America; and (viii) Accounts, notes and other receivables due from
Affiliates or employees.
Consolidated Adjusted Tangible Net Worth - at any date means a
sum equal to:
(i) the net book value (after deducting related
depreciation, obsolescence, amortization, valuation, and other proper
reserves) at which the Consolidated Adjusted Tangible Assets of Company
would be shown on a balance sheet at such date in accordance with GAAP,
minus
(ii) the amount at which Company's Consolidated
liabilities (other than capital stock and surplus) would be shown on
such balance sheet in accordance with GAAP, and including as
liabilities all reserves for contingencies and other potential
liabilities.
Current Assets - at any date means the amount at which all of
the current assets of a Person would be properly classified as current
assets shown on a balance sheet at such date in accordance with GAAP
except that amounts due from Affiliates and investments in Affiliates
shall be excluded therefrom.
Current Liabilities - at any date means the amount at which
all of the current liabilities of a Person would be properly classified
as current liabilities on a balance sheet at such date in accordance
with GAAP excluding the Loans and current maturities of any long-term
Indebtedness.
Default - an event or condition the occurrence of which would,
with the lapse of time or the giving of notice, or both, become an
Event of Default.
Default Rate - as defined in subsection 2.1.2 of the
Agreement.
Distribution - in respect of any corporation means and
includes: (i) the payment of any dividends or other distributions on
capital stock of the corporation (except distributions in such stock)
and (ii) the redemption or acquisition of Securities unless made
contemporaneously from the net proceeds of the sale of Securities.
Dominion Account - a special account of Lender established by
Borrowers pursuant to the Agreement at a bank selected by Borrowers,
but acceptable to Lender in its reasonable discretion, and over which
Lender shall have sole and exclusive access and control for withdrawal
purposes.
EBIT - with respect to any fiscal period, the sum of Company's
Consolidated net earnings (or loss) before interest expense and taxes
for said period as determined in accordance with GAAP.
Eligible Account - an Account arising in the ordinary course
of Borrowers' business from the sale of goods or rendition of services
which Lender, in its reasonable credit judgment, deems to be an
Eligible Account. Without limiting the generality of the foregoing, no
Account shall be an Eligible Account if:
(i) it arises out of a sale made by a Borrower to a
Subsidiary or an Affiliate of Borrower or to a Person
controlled by an Affiliate of a Borrower; or
(ii) it is unpaid for more than 30 days after the
original due date shown on the invoice; or
(iii) it is due or unpaid more than 210 days after
the original invoice date; or
(iv) 25% or more of the Accounts from the Account
Debtor are not deemed Eligible Accounts hereunder; or
(v) the total unpaid Accounts of the Account Debtor
exceed 20% of the net amount of all Eligible Accounts, to the
extent of such excess; or
(vi) any covenant, representation or warranty
contained in the Agreement with respect to such Account has
been breached; or
(vii) the Account Debtor is also a Borrower's
creditor or supplier, or the Account Debtor has disputed
liability with respect to such Account, or the Account Debtor
has made any claim with respect to any other Account due from
such Account Debtor to any Borrower, or the Account otherwise
is or may become subject to any right of setoff by the Account
Debtor; or
(viii) the Account Debtor has commenced a voluntary
case under the federal bankruptcy laws, as now constituted or
hereafter amended, or made an assignment for the benefit of
creditors, or a decree or order for relief has been entered by
a court having jurisdiction in the premises in respect of the
Account Debtor in an involuntary case under the federal
bankruptcy laws, as now constituted or hereafter amended, or
any other petition or other application for relief under the
federal bankruptcy laws has been filed against the Account
Debtor, or if the Account Debtor has failed, suspended
business, ceased to be Solvent, or consented to or suffered a
receiver, trustee, liquidator or custodian to be appointed for
it or for all or a significant portion of its assets or
affairs; or
(ix) it arises from a sale to an Account Debtor
outside the United States or Canada (other than Quebec),
unless the sale is on letter of credit, guaranty or acceptance
terms in each case acceptable to Lender in its sole
discretion; or
(x) it arises from a sale to the Account Debtor on a
bill-and-hold, guaranteed sale, sale-or-return,
sale-on-approval, consignment or any other repurchase or
return basis; or
(xi) the Account Debtor is the United States of
America or any department, agency or instrumentality thereof,
unless Borrower assigns its right to payment of such Account
to Lender, in a manner satisfactory to Lender so as to comply
with the Assignment of Claims Act of 1940 (31 U.S.C. '203 et
seq., as amended); or
(xii) the Account is subject to a Lien other than a
Permitted Lien; or
(xiii) the goods giving rise to such Account have not
been delivered to and accepted by the Account Debtor or the
services giving rise to such Account have not been performed
by the applicable Borrower and accepted by the Account Debtor
or the Account otherwise does not represent a final sale; or
(xiv) the Account is evidenced by chattel paper or an
instrument of any kind, or has been reduced to judgment; or
(xv) Any Borrower has made any agreement with the
Account Debtor for any deduction therefrom, except for
discounts or allowances which are made in the ordinary course
of business for prompt payment and which discounts or
allowances are reflected in the calculation of the face value
of each invoice related to such Account; or
(xvi) Any Borrower has made an agreement with the
Account Debtor to extend the time of payment thereof.
Eligible Inventory - such Inventory of Borrowers (other than
packaging materials and supplies) which Lender, in its reasonable
credit judgments deems to be Eligible Inventory. Without limiting the
generality of the foregoing, no Inventory shall be Eligible Inventory
if:
(i) it is not raw materials or finished goods that
is, in Lender's opinion, readily marketable in its current
form; or
(ii) it is not in good, new and saleable condition;
or
(iii) it is slow-moving, obsolete or unmerchantable;
or
(iv) it does not meet all standards imposed by any
governmental agency or authority; or
(v) it does not conform in all respects to the
warranties and representations set forth in the Agreement,
(vi) it is not at all times subject to Lender's duly
perfected, first priority security interest and no other Lien
except a Permitted Lien;
(vii) it is not situated at a location in compliance
with the Agreement or is in transit; or
(viii) is not situated at a location in the United
States of America.
Environmental Laws - all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidances, orders and
consent decrees relating to health, safety and environmental matters.
EPI Borrowing Base - as at any date of determination thereof,
an amount equal to the lesser of:
(i) the remainder of Sixteen Million Five Hundred
Thousand Dollars ($16,500,000) minus the outstanding principal
balance of the Revolving Credit Loans made to PPI and APP; or
(ii) an amount equal to:
(a) up to eighty-five percent 85%, of the
net amount of Eligible Accounts of EPI outstanding at
such date;
PLUS
(b) the lesser of (1) the remainder of Eight
Million Dollars ($8,000,000) minus the outstanding
principal of Revolving Credit Loans made to PPI and
APP based on PPI's and APP's Eligible Inventory; or
(2) up to fifty-five percent (55%), of the value of
Eligible Inventory at such date calculated on the
basis of the lower of cost or market with the cost of
raw materials and finished goods calculated on a
first-in, first-out basis.
For purposes hereof, the net amount of Eligible Accounts of EPI at any
time shall be the face amount of such Eligible Accounts less
any and all returns, rebates, discounts (which may, at
Lender's option, be calculated on shortest terms), credits,
allowances or excise taxes of any nature at any time issued,
owing, claimed by Account Debtors, granted, outstanding or
payable in connection with such Accounts at such time.
Equipment - all machinery, apparatus, equipment, fittings,
furniture, fixtures, motor vehicles and other tangible personal
Property (other than Inventory) of every kind and description used in
Borrowers' operations or owned by Borrowers or in which any Borrower
has an interest, whether now owned or hereafter acquired by any
Borrower and wherever located, and all parts, accessories and special
tools and all increases and accessions thereto and substitutions and
replacements therefor.
EPI Term Loan - shall have the meaning contained in Section
1.2.1 of the Agreement.
EPI Term Note - the Secured Promissory Note to be executed by
EPI on or about the Closing Date in favor of Lender to evidence the EPI
Term Loan, which shall be in the form of Exhibit A-1 to the Agreement.
ERISA - the Employee Retirement Income Security Act of 1974,
as amended, and all rules and regulations from time to time promulgated
thereunder.
Event of Default - as defined in Section 10.1 of the
Agreement.
GAAP - generally accepted accounting principles in the United
States of America in effect from time to time.
General Intangibles - all general intangibles of Borrowers,
whether now owned or hereafter created or acquired by Borrowers,
including, without limitation, all choses in action, causes of action,
corporate or other business records, deposit accounts, inventions,
designs, patents, patent applications, trademarks, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, franchises,
customer lists, tax refund claims, computer programs, all claims under
guaranties, security interests or other security held by or granted to
Borrowers to secure payment of any of the Accounts by an Account
Debtor, all rights to indemnification and all other intangible property
of every kind and nature (other than Accounts).
Guaranty - the Continuing Guaranty Agreement which is to be
executed by Company in form and substance satisfactory to Lender.
Hastings Documents - that certain Redevelopment Contract
between the City of Hastings, Nebraska, and EPI and related Promissory
Notes.
Indebtedness - as applied to a Person means, without
duplication
(i) all items which in accordance with GAAP would be
included in determining total liabilities as shown on the
liability side of a balance sheet of such Person as at the
date as of which Indebtedness is to be determined, including,
without limitation, Capitalized Lease Obligations,
(ii) all obligations of other Persons which such
Person has guaranteed,
(iii) all reimbursement obligations in connection
with letters of credit or letter of credit guaranties issued
for the account of such Person, and
(iv) in the case of Borrowers (without duplication),
the Obligations.
Intercreditor and Subordination Agreement - the Intercreditor
and Subordination Agreement to be dated on or about the Closing Date by
and between Lender and Blair and acknowledged by Company and Borrowers
in respect to the Indebtedness evidenced by the Subordinated Debt
Documents.
Inventory - all of Borrowers' inventory, whether now owned or
hereafter acquired including, but not limited to, all goods intended
for sale or lease by Borrowers, or for display or demonstration; all
work in process; all raw materials and other materials and supplies of
every nature and description used or which might be used in connection
with the manufacture, printing, packing, shipping, advertising,
selling, leasing or furnishing of such goods or otherwise used or
consumed in Borrowers' business; and all documents evidencing and
General Intangibles relating to any of the foregoing, whether now owned
or hereafter acquired by Borrowers.
Investment Property - all of Borrowers' investment property,
whether now owned or hereinafter acquired by Borrowers, including,
without limitation, all securities (certificated or uncertificated),
securities accounts, securities entitlements, commodity accounts and
contracts.
Legal Requirement - any requirement imposed upon Lender or any
Participating Lender by any law of the United States of America or the
United Kingdom or by any regulation, order, interpretation, ruling of
official directive (whether or not having the force of law) of the
Board, the bank of England or any other board, central bank or
governmental or administrative agency, institution or authority of the
United States of America, the United Kingdom or any political
subdivision of either thereof.
LIBOR Interest Payment Date - with respect to any LIBOR
Portion, the last day of the applicable LIBOR Period.
LIBOR Option - the option granted pursuant to Section 3.1(B)
to have the interest on all or any portion of the principal amount of
the Term Loan or Revolving Credit Loans based on a LIBOR Rate.
LIBOR Period - any period, selected as provided in Section
3.1(B) of 1 month, 2 months or 3 months, commencing on any Business
Day, subject to the provisions of Section 3.1(B); provided, however,
that no LIBOR Period shall extend beyond the last day of the Original
Term, unless Borrowers and Lender have agreed to an extension of the
Original Term beyond the expiration of the LIBOR Period in question. If
any LIBOR Period so elected shall end on a date that is not a Business
Day, such LIBOR Period shall instead end on the next preceding or
succeeding Business Day as determined by Lender in accordance with the
then current banking practice in London. Each determination by the
Lender of LIBOR Period shall, in the absence of manifest error, be
conclusive, and at Borrower's request, Lender shall demonstrate the
basis for such determination.
LIBOR Portion - that portion of the Revolving Credit Loans or
of the Term Loan specified in a LIBOR Request (including any portion of
Revolving Credit Loans which is being borrowed by Borrower concurrently
with such LIBOR Request) which is not less than $1,000,000, which does
not exceed the outstanding balance of Revolving Credit Loan and/or Term
Loan not already subject to a LIBOR Option and, which, as of the date
of the LIBOR Request specifying such LIBOR Portion, has met the
conditions for basing interest on the LIBOR Rate in Section 2.1.1(B)
hereof and the LIBOR Period of which was commenced and not terminated.
LIBOR Rate - with respect to any LIBOR Portion for the related
LIBOR Period, an interest rate per annum (rounded upwards, if
necessary, to the next higher 1/8 of 1%) equal to the product of (a)
the Base LIBOR Rate ( as hereinafter defined) and (b) Statutory
Reserves. For purposes of this definition, the term "Base LIBOR Rate"
shall mean the rate (rounded to the nearest 1/8 of 1% or, if there is
no nearest 1/8 of 1%, the next higher 1/8 of 1%) at which deposits of
U.S. dollars approximately equal in principal amount to the LIBOR
Portion specified in the applicable LIBOR Request are offered to Bank,
in the London interbank foreign currency deposits market at
approximately 11:00 a.m., London time, two (2) Business Days prior to
the commencement of such LIBOR Period, for delivery on the first day of
such LIBOR Period. Each determination by Lender of any LIBOR Rate shall
in the absence of manifest error, be conclusive, and at Borrower's
request, Lender shall demonstrate the basis of such determination.
LIBOR Request - a notice in writing (or by telephonic
communication confirmed by telex, telecopy or other facsimile
transmission on the same day as the telephone request) from Borrower to
Lender requesting that interest on all or a portion of the Revolving
Credit Loan and/or Term Loan be based on the LIBOR Rate, specifying:
(i) the first day of the LIBOR Period, (ii) the length of the LIBOR
Period consistent with the definition of that term, and (iii) a dollar
amount of the LIBOR Portion consistent with the definition of such
term.
LIBOR Revolving Loan Portion - that portion of the Revolving
Credit Loans specified in a LIBOR Request (including any portion of
Revolving Credit Loans which is being borrowed by Borrower concurrently
with such LIBOR Request) which is not less than $1,000,000, which does
not exceed the outstanding balance of Revolving Credit Loan not already
subject to a LIBOR Option and, which, as of the date of the LIBOR
Request specifying such LIBOR Portion, has met the conditions for
basing interest on the LIBOR Rate in Section 2.1.1(B) hereof and the
LIBOR Period of which was commenced and not terminated.
LIBOR Term Portion - that portion of the Term Loan specified
in a LIBOR Request which is not less than $1,000,000, which does not
exceed the outstanding balance of Term Loan not already subject to a
LIBOR Option and, which, as of the date of the LIBOR Request specifying
such LIBOR Portion, has met the conditions for basing interest on the
LIBOR Rate in Section 2.1.1(B) hereof and the LIBOR Period of which was
commenced and not terminated.
Lien - any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of the Property,
whether such interest is based on common law, statute or contract. The
term "Lien" shall also include reservations, exceptions, encroachments,
easements, rights-of-way, covenants, conditions, restrictions, leases
and other title exceptions and encumbrances affecting Property. For the
purpose of the Agreement, Borrower shall be deemed to be the owner of
any Property which it has acquired or holds subject to a conditional
sale agreement or other arrangement pursuant to which title to the
Property has been retained by or vested in some other Person for
security purposes.
Loan Account - the loan account established on the books of
Lender pursuant to Section 3.6 of the Agreement.
Loan Documents - the Agreement, the Other Agreements and the
Security Documents.
Loans - all loans and advances of any kind made by Lender
pursuant to the Agreement.
Money Borrowed - means (i) Indebtedness arising from the
lending of money by any Person to Borrowers or any one of them; (ii)
Indebtedness, whether or not in any such case arising from the lending
by any Person of money to Borrowers or any one of them, (A) which is
represented by notes payable or drafts accepted that evidence
extensions of credit, (B) which constitutes obligations evidenced by
bonds, debentures, notes or similar instruments, or (C) upon which
interest charges are customarily paid (other than accounts payable) or
that was issued or assumed as full or partial payment for Property;
(iii) Indebtedness that constitutes a Capitalized Lease Obligation;
(iv) reimbursement obligations with respect to letters of credit or
guaranties of letters of credit and (v) Indebtedness of Borrowers under
any guaranty of obligations that would constitute Indebtedness for
Money Borrowed under clauses (i) through (iii) hereof, if owed directly
by Borrowers.
Mortgages - the mortgages, deeds of trust, security deeds
and/or leasehold mortgages to be executed by a Borrower on or about the
Closing Date in favor of Lender and by which a Borrower shall grant and
convey to Lender, as security for the Obligations, a Lien upon the real
Property of Borrowers located in or at (i) Hastings, Nebraska and (ii)
21500 Northwest Plastics Drive, Hillsboro, Oregon.
Multiemployer Plan - has the meaning set forth in Section
4001(a)(3) of ERISA.
Net Cash Flow - for any period, means Company's (i)
Consolidated Adjusted Net Earnings from Operations for such period,
plus (ii) Consolidated depreciation and amortization expenses for such
period, plus (iii) Consolidated deferred taxes for such period, all as
determined in accordance with GAAP minus (iv) Consolidated Capital
Expenditure minus (v) all principal payments (other than principal
payments made in respect to the Revolving Credit Loans and in respect
to Indebtedness for Money Borrowed owed to FirsTier Bank, National
Association, Bank of America, Oregon or payments made in respect to
outstanding Indebtedness under the Subordinated Loan Debt Documents on
the Closing Date to the extent permitted by Section 8.2.7(a) of the
Agreement) made within such period in respect of Indebtedness for Money
Borrowed.
New Mortgages - as defined in Section 5.3 of the Agreement.
Obligations - all Loans and all other advances, debts,
liabilities, obligations, covenants and duties, together with all
interest, fees and other charges thereon, owing, arising, due or
payable from Borrowers to Lender of any kind or nature, present or
future, whether or not evidenced by any note, guaranty or other
instrument, whether arising under the Agreement or any of the other
Loan Documents or otherwise whether direct or indirect (including those
acquired by assignment), absolute or contingent, primary or secondary,
due or to become due, now existing or hereafter arising and however
acquired.
Original Term - as defined in Section 4.1 of the Agreement.
Other Agreements - any and all agreements, instruments and
documents (other than the Agreement and the Security Documents),
heretofore, now or hereafter executed by any Borrower, any Subsidiary
of any Borrower or any other third party and delivered to Lender in
respect of the transactions contemplated by the Agreement.
Overadvance - the amount, if any, by which the outstanding
principal amount of Revolving Credit Loans exceeds the sum of the EPI
Borrowing Base, the PPI Borrowing Base and the APP Borrowing Base.
Participating Lender - each Person who shall be granted the
right by Lender to participate in any of the Loans described in the
Agreement and who shall have entered into a participation agreement in
form and substance satisfactory to Lender.
Permitted Liens - any Lien of a kind specified in subsection
8.2.5 of the Agreement.
Permitted Purchase Money Indebtedness - Purchase Money
Indebtedness of any Borrower incurred after the date hereof which is
secured by a Purchase Money Lien and which, when aggregated with the
principal amount of all other such Indebtedness and Capitalized Lease
Obligations of Borrower at the time outstanding, does not exceed One
Million Two Hundred Fifty Thousand Dollars ($1,250,000). For the
purposes of this definition, the principal amount of any Purchase Money
Indebtedness consisting of capitalized leases shall be computed as a
Capitalized Lease Obligation.
Person - an individual, partnership, corporation, limited
liability company, joint stock company, land trust, business trust, or
unincorporated organization, or a government or agency or political
subdivision thereof.
Plan - an employee benefit plan now or hereafter maintained
for employees of Borrower that is covered by Title IV of ERISA.
PPI Borrowing Base - as at any date of determination thereof,
an amount equal to the lesser of:
(i) the remainder of Sixteen Million Five Hundred
Thousand Dollars ($16,500,000) minus the outstanding principal
balance of Revolving Credit Loans made to EPI and APP; or
(ii) an amount equal to:
(a) up to eighty-five percent 85%, of the
net amount of Eligible Accounts of PPI outstanding at
such date;
PLUS
(b) the lesser of (1) Eight Million Dollars
($8,000,000) minus the outstanding principal amount
of Revolving Credit Loans made to EPI and APP based
on EPI's and APP's Eligible Inventory; or (2) up to
fifty-five percent (55%), of the value of Eligible
Inventory of PPI at such date calculated on the basis
of the lower of cost or market with the cost of raw
materials and finished goods calculated on a
first-in, first-out basis.
For purposes hereof, the net amount of Eligible Accounts of PPI at any
time shall be the face amount of such Eligible Accounts less
any and all returns, rebates, discounts (which may, at
Lender's option, be calculated on shortest terms), credits,
allowances or excise taxes of any nature at any time issued,
owing, claimed by Account Debtors, granted, outstanding or
payable in connection with such Accounts at such time.
PPI Term Loan - shall have the meaning contained in Section
1.2.1 of the Agreement.
PPI Term Note - the Secured Promissory Note to be executed by
PPI on or about the Closing Date in favor of Lender to evidence the PPI
Term Loan, which shall be in the form of Exhibit A-2 to the Agreement.
Prime Portion - that portion of the Revolving Credit Loans and
the Term Loan not subject to a LIBOR Option.
Projections - Company's forecasted Consolidated and
consolidating (a) balance sheets, (b) profit and loss statements, (c)
cash flow statements, and (d) capitalization statements, all prepared
on a consistent basis with Company's historical financial statements,
together with appropriate supporting details and a statement of
underlying assumptions.
Promissory Note and Stock Pledge Agreement - that certain
Promissory Note and Stock Pledge Agreement dated as of July 10, 1995
between Company, Pacific Acquisition Corp., PPI and the selling
shareholder signatories thereto, as in effect on the Closing Date.
Property - any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
Purchase Money Indebtedness - means and includes (i)
Indebtedness (other than the Obligations) for the payment of all or any
part of the purchase price of any fixed assets, (ii) any Indebtedness
(other than the Obligations) incurred at the time of or within 10 days
prior to or after the acquisition of any fixed assets for the purpose
of financing all or any part of the purchase price thereof, and (iii)
any renewals, extensions or refinancings thereof, but not any increases
in the principal amounts thereof outstanding at the time.
Purchase Money Lien - a Lien upon fixed assets which secures
Purchase Money Indebtedness, but only if such Lien shall at all times
be confined solely to the fixed assets the purchase price of which was
financed through the incurrence of the Purchase Money Indebtedness
secured by such Lien.
Rentals - as defined in subsection 8.2.12 of the Agreement.
Reportable Event - any of the events set forth in Section
4043(b) of ERISA.
Restricted Investment - any investment made in cash or by
delivery of Property to any Person, whether by acquisition of stock,
Indebtedness or other obligation or Security, or by loan, advance or
capital contribution, or otherwise, or in any Property except the
following:
(i) investments in one or more Subsidiaries of
Borrowers to the extent existing on the Closing Date;
(ii) Property to be used in the ordinary course of
business;
(iii) Current Assets arising from the sale of goods
and services in the ordinary course of business of Borrowers
and their respective Subsidiaries;
(iv) investments in direct obligations of the United
States of America, or any agency thereof or obligations
guaranteed by the United States of America, provided that such
obligations mature within one year from the date of
acquisition thereof;
(v) investments in certificates of deposit maturing
within one year from the date of acquisition issued by a bank
or trust company organized under the laws of the United States
or any state thereof having capital surplus and undivided
profits aggregating at least $100,000,000; and
(vi) investments in commercial paper given the
highest rating by a national credit rating agency and maturing
not more than 270 days from the date of creation thereof.
Revolving Credit Loan - a Loan made by Lender as provided in
Section 2.1 of the Agreement.
Schedule of Accounts - as defined in subsection 6.4.1 of the
Agreement.
Security - shall have the same meaning as in Section 2(1) of
the Securities Act of 1933, as amended.
Security Documents - the Mortgages, any New Mortgage, the
Patent Assignment, the Trademark Assignments and all other instruments
and agreements now or at any time hereafter securing the whole or any
part of the Obligations.
Senior Interest Coverage Ratio - with respect to any period of
determination, the ratio of Consolidated (i) EBIT for such period to
(ii) Senior Interest Expense for such period, all as determined in
accordance with GAAP.
Senior Interest Expense - with respect to any fiscal period,
the interest expense incurred by Borrowers for such period in respect
to all Indebtedness for Money Borrowed (other than Indebtedness
outstanding pursuant to the Subordinated Debt Documents) as determined
in accordance with GAAP owing by Borrowers to Lender for such period.
Solvent - as to any Person, such Person (i) owns Property
whose fair saleable value is greater than the amount required to pay
all of such Person's Indebtedness (including contingent debts), (ii) is
able to pay all of its Indebtedness as such Indebtedness matures and
(iii) has capital sufficient to carry on its business and transactions
and all business and transactions in which it is about to engage.
Spell Group - shall mean collectively William H. Spell, Harry
W. Spell, Richard W. Perkins, Bruce A. Richard, any of their spouses or
any family trust which is controlled by any of the foregoing.
Statutory Reserves - a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is
the number one minus the aggregate of the maximum reserve percentages
(including, without limitation, any marginal, special, emergency or
supplemental reserves), expressed as a decimal, established by the
Board and any other banking authority to which Bank or Lender is
subject for Eurocurrency Liabilities (as defined in Regulation D of the
Board or any successor thereto). Such reserve percentages shall
include, without limitation, those imposed under such Regulation D.
LIBOR Portions shall be deemed to constitute Eurocurrency Liabilities
and as such shall be deemed to be subject to such reserve requirements
without benefit of or credit for proration, exceptions or offsets which
may be available from time to time to bank or Lender under such
Regulation D. Statutory Reserves shall be adjusted automatically on and
as of the effective date of any change in any reserve percentage,
provided that no adjustment shall reduce Statutory Reserves below the
amount in effect on the Closing Date. At the Borrower's request, the
Lender shall provide Borrowers with Lender's calculations of Statutory
Reserves.
Subordinated Loan Agreement - shall mean the Debenture
Acquisition Agreement (as defined in the definition of Subordinated
Debt Documents) together with all amendments and modifications thereto,
including without limitation, the Amendment Agreement.
Subordinated Debt Documents - that certain Debenture
Acquisition Agreement ("Debenture Acquisition Agreement") dated as of
March 16, 1995 by and among Blair, EPI and Company with any notes,
documents, instruments, agreements, guaranties, exhibits or schedules
executed and/or delivered in connection therewith, and all amendments
and modifications thereto, including without, limitation, that certain
Amendment Agreement ("Amendment Agreement") of even date herewith by
and among Blair, EPI, PPI, APP and Company.
Subordinated Debt - Indebtedness of Borrowers that is
subordinated to the Obligations in a manner satisfactory to Lender,
including, without limitation, Indebtedness outstanding pursuant to the
Subordinated Debt Documents.
Subsidiary - any corporation of which a Person owns, directly
or indirectly through one or more intermediaries, more than 50% of the
Voting Stock at the time of determination.
Tax - in relation to any LIBOR Portion and the applicable
LIBOR Rate, any tax, levy, impost, duty, deduction, withholding or
charges of whatever nature required by any Legal Requirement (i) to be
paid by Lender and/or (ii) to be withheld or deducted from any payment
otherwise required hereby to be made by Borrowers to Lender; provided,
that the term "Tax" shall not include any taxes imposed upon the net
income of Lender.
Term Loan - collectively, the EPI Term Loan, the PPI Term Loan
and the APP Term Loan.
Term Note - collectively, the EPI Term Note, the PPI Term Note
and the APP Term Note.
Trademark Assignment - the Trademark Security Agreement to be
executed by Borrowers on or about the Closing Date in favor of Lender
and by which Borrowers shall assign to Lender, and grant to Lender a
security interest in, as security for the Obligations all of Borrowers'
right, title and interest in and to all of its trademarks.
Total Credit Facility - Twenty-Four Million Five Hundred
Thousand Dollars ($24,500,000).
Voting Stock - Securities of any class or classes of a
corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors
(or Persons performing similar functions).
Warrants - shall have the meaning contained in the Amendment
Agreement.
OTHER TERMS. All other terms contained in the Agreement shall
have, when the context so indicates, the meanings provided for
by the Code to the extent the same are used or defined
therein.
CERTAIN MATTERS OF CONSTRUCTION. The terms "herein", "hereof"
and "hereunder" and other words of similar import refer to the
Agreement as a whole and not to any particular section,
paragraph or subdivision. Any pronoun used shall be deemed to
cover all genders. The section titles, table of contents and
list of exhibits appear as a matter of convenience only and
shall not affect the interpretation of the Agreement. All
references to statutes and related regulations shall include
any amendments of same and any successor statutes and
regulations. All references to any of the Loan Documents shall
include any and all modifications thereto and any and all
extensions or renewals thereof.
Any accounting term used in this Agreement shall have, unless
otherwise specifically provided herein, the meaning
customarily given such term in accordance with GAAP, and all
financial computations hereunder shall be computed, unless
otherwise specifically provided herein, in accordance with
GAAP consistently applied. That certain terms or computations
are explicitly modified by the phrase "in accordance with
GAAP" shall in no way be construed to limit the foregoing.
EXHIBIT A-1
SECURED PROMISSORY NOTE
$3,275,000 May 10, 1996
Chicago, Illinois
FOR VALUE RECEIVED, the undersigned (hereinafter "Borrower"), hereby
promises to pay to the order of FLEET CAPITAL CORPORATION, a Connecticut
corporation (hereinafter "Lender"), in such coin or currency of the United
States which shall be legal tender in payment of all debts and dues, public and
private, at the time of payment, the principal sum of Three Million Two Hundred
Seventy-Five Thousand Dollars ($3,275,000), together with interest from and
after the date hereof on the unpaid principal balance outstanding from time to
time.
This Secured Promissory Note (the "Note") is the EPI Term Note referred
to in, and is issued pursuant to, that certain Loan and Security Agreement
between Borrower, Pacific Plastics, Inc. ("PPI") and Arrow Pacific Plastics,
Inc. ("APP") and Lender dated the date hereof (hereinafter, as amended from time
to time, the "Loan Agreement"), and is entitled to all of the benefits and
security of the Loan Agreement. All of the terms, covenants and conditions of
the Loan Agreement and the Security Documents are hereby made a part of this
Note and are deemed incorporated herein in full. All capitalized terms used
herein, unless otherwise specifically defined in this Note, shall have the
meanings ascribed to them in the Loan Agreement.
For so long as no Event of Default shall have occurred the principal
amount and accrued interest of this Note shall be due and payable on the dates
and in the manner hereinafter set forth:
(a) Interest on the unpaid principal balance outstanding from
time to time shall be paid at such interest rates and at such times as
are specified in the Loan Agreement;
(b) Principal shall be due and payable monthly commencing on
June 1, 1996, and continuing on the first day of each month thereafter
to and including the first day of the month in which the Commitment
Termination occurs, in installments of Thirty-Nine Thousand Dollars
($39,000) each; and
(c) The entire remaining principal amount then outstanding,
together with any and all other amounts due hereunder, shall be due and
payable on the Commitment Termination Date.
Notwithstanding the foregoing, the entire unpaid principal balance and accrued
interest on this Note shall be due and payable immediately upon any termination
of the Loan Agreement pursuant to Section 4 thereof.
This Note shall be subject to mandatory prepayment in accordance with
the provisions of Section 3.3 of the Loan Agreement. Borrower, PPI and APP may
also terminate the Loan Agreement and, in connection with such termination,
prepay this Note in the manner provided in Section 4 of the Loan Agreement.
Upon the occurrence of an Event of Default, Lender shall have all of
the rights and remedies set forth in Section 10 of the Loan Agreement.
Time is of the essence of this Note. To the fullest extent permitted by
applicable law, Borrower, for itself and its legal representatives, successors
and assigns, expressly waive presentment, demand, protest, notice of dishonor,
notice of non-payment, notice of maturity, notice of protest, presentment for
the purpose of accelerating maturity, diligence in collection, and the benefit
of any exemption or insolvency laws.
Wherever possible, each provision of this Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or remaining provisions of
this Note. No delay or failure on the part of Lender in the exercise of any
right or remedy hereunder shall operate as a waiver thereof, nor as an
acquiescence in any default, nor shall any single or partial exercise by Lender
of any right or remedy preclude any other right or remedy. Lender, at its
option, may enforce its rights against any collateral securing this Note without
enforcing its rights against Borrower, any guarantor of the indebtedness
evidenced hereby or any other property or indebtedness due or to become due to
Borrower. Borrower agrees that, without releasing or impairing Borrower's
liability hereunder, Lender may at any time release, surrender, substitute or
exchange any collateral securing this Note and may at any time release any party
primarily or secondarily liable for the indebtedness evidenced by this Note.
This Note shall be governed by, and construed and enforced in
accordance with, the laws of the State of Illinois.
IN WITNESS WHEREOF, Borrowers have caused this Note to be duly executed
and delivered in Chicago, Illinois, on the date first above
written.
EAGLE PLASTICS, INC.,
a Nebraska corporation ("Borrower")
By:
Name:
Title:
EXHIBIT A-2
SECURED PROMISSORY NOTE
$3,775,000 May 10, 1996
Chicago, Illinois
FOR VALUE RECEIVED, the undersigned (hereinafter "Borrower"), hereby
promises to pay to the order of FLEET CAPITAL CORPORATION, a Connecticut
corporation (hereinafter "Lender"), in such coin or currency of the United
States which shall be legal tender in payment of all debts and dues, public and
private, at the time of payment, the principal sum of Three Million Seven
Hundred Seventy-Five Thousand Dollars ($3,775,000), together with interest from
and after the date hereof on the unpaid principal balance outstanding from time
to time.
This Secured Promissory Note (the "Note") is the PPI Term Note referred
to in, and is issued pursuant to, that certain Loan and Security Agreement
between Borrower, Eagle Plastics, Inc. ("EPI") and Arrow Pacific Plastics, Inc.
("APP") and Lender dated the date hereof (hereinafter, as amended from time to
time, the "Loan Agreement"), and is entitled to all of the benefits and security
of the Loan Agreement. All of the terms, covenants and conditions of the Loan
Agreement and the Security Documents are hereby made a part of this Note and are
deemed incorporated herein in full. All capitalized terms used herein, unless
otherwise specifically defined in this Note, shall have the meanings ascribed to
them in the Loan Agreement.
For so long as no Event of Default shall have occurred the principal
amount and accrued interest of this Note shall be due and payable on the dates
and in the manner hereinafter set forth:
(a) Interest on the unpaid principal balance outstanding from time to
time shall be paid at such interest rates and at such times as are specified in
the Loan Agreement;
(b) Principal shall be due and payable monthly commencing on June 1,
1996, and continuing on the first day of each month thereafter to and including
the first day of the month in which the Commitment Termination occurs, in
installments of Forty-Five Thousand Dollars ($45,000) each; and
(c) The entire remaining principal amount then outstanding, together
with any and all other amounts due hereunder, shall be due and payable on the
Commitment Termination Date.
Notwithstanding the foregoing, the entire unpaid principal balance and accrued
interest on this Note shall be due and payable immediately upon any termination
of the Loan Agreement pursuant to Section 4 thereof.
This Note shall be subject to mandatory prepayment in accordance with
the provisions of Section 3.3 of the Loan Agreement. Borrower, EPI and APP may
also terminate the Loan Agreement and, in connection with such termination,
prepay this Note in the manner provided in Section 4 of the Loan Agreement.
Upon the occurrence of an Event of Default, Lender shall have all of
the rights and remedies set forth in Section 10 of the Loan Agreement.
Time is of the essence of this Note. To the fullest extent permitted by
applicable law, Borrower, for itself and its legal representatives, successors
and assigns, expressly waive presentment, demand, protest, notice of dishonor,
notice of non-payment, notice of maturity, notice of protest, presentment for
the purpose of accelerating maturity, diligence in collection, and the benefit
of any exemption or insolvency laws.
Wherever possible, each provision of this Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or remaining provisions of
this Note. No delay or failure on the part of Lender in the exercise of any
right or remedy hereunder shall operate as a waiver thereof, nor as an
acquiescence in any default, nor shall any single or partial exercise by Lender
of any right or remedy preclude any other right or remedy. Lender, at its
option, may enforce its rights against any collateral securing this Note without
enforcing its rights against Borrower, any guarantor of the indebtedness
evidenced hereby or any other property or indebtedness due or to become due to
Borrower. Borrower agrees that, without releasing or impairing Borrower's
liability hereunder, Lender may at any time release, surrender, substitute or
exchange any collateral securing this Note and may at any time release any party
primarily or secondarily liable for the indebtedness evidenced by this Note.
This Note shall be governed by, and construed and enforced in
accordance with, the laws of the State of Illinois.
IN WITNESS WHEREOF, Borrowers have caused this Note to be duly executed
and delivered in Chicago, Illinois, on the date first above
written.
PACIFIC PLASTICS, INC.,
an Oregon corporation ("Borrower")
By:
Name:
Title:
EXHIBIT A-3
SECURED PROMISSORY NOTE
$950,000 May 10, 1996
Chicago, Illinois
FOR VALUE RECEIVED, the undersigned (hereinafter "Borrower"), hereby
promises to pay to the order of FLEET CAPITAL CORPORATION, a Connecticut
corporation (hereinafter "Lender"), in such coin or currency of the United
States which shall be legal tender in payment of all debts and dues, public and
private, at the time of payment, the principal sum of Nine Hundred Fifty
Thousand Dollars ($950,000), together with interest from and after the date
hereof on the unpaid principal balance outstanding from time to time.
This Secured Promissory Note (the "Note") is the APP Term Note referred
to in, and is issued pursuant to, that certain Loan and Security Agreement
between Borrower, Eagle Plastics, Inc. ("EPI") and Pacific Plastics, Inc.
("PPI") and Lender dated the date hereof (hereinafter, as amended from time to
time, the "Loan Agreement"), and is entitled to all of the benefits and security
of the Loan Agreement. All of the terms, covenants and conditions of the Loan
Agreement and the Security Documents are hereby made a part of this Note and are
deemed incorporated herein in full. All capitalized terms used herein, unless
otherwise specifically defined in this Note, shall have the meanings ascribed to
them in the Loan Agreement.
For so long as no Event of Default shall have occurred the principal
amount and accrued interest of this Note shall be due and payable on the dates
and in the manner hereinafter set forth:
(a) Interest on the unpaid principal balance outstanding from time
to time shall be paid at such interest rates and at such times
as are specified in the Loan Agreement;
(b) Principal shall be due and payable monthly commencing on June
1, 1996, and continuing on the first day of each month
thereafter to and including the first day of the month in
which the Commitment Termination occurs, in installments of
Eleven Thousand Three Hundred Dollars ($11,300) each; and
(c) The entire remaining principal amount then outstanding,
together with any and all other amounts due hereunder, shall
be due and payable on the Commitment Termination Date.
Notwithstanding the foregoing, the entire unpaid principal balance and
accrued interest on this Note shall be due and payable immediately upon any
termination of the Loan Agreement pursuant to Section 4 thereof.
This Note shall be subject to mandatory prepayment in accordance with
the provisions of Section 3.3 of the Loan Agreement. Borrower, EPI and PPI may
also terminate the Loan Agreement and, in connection with such termination,
prepay this Note in the manner provided in Section 4 of the Loan Agreement.
Upon the occurrence of an Event of Default, Lender shall have all of
the rights and remedies set forth in Section 10 of the Loan Agreement.
Time is of the essence of this Note. To the fullest extent permitted by
applicable law, Borrower, for itself and its legal representatives, successors
and assigns, expressly waive presentment, demand, protest, notice of dishonor,
notice of non-payment, notice of maturity, notice of protest, presentment for
the purpose of accelerating maturity, diligence in collection, and the benefit
of any exemption or insolvency laws.
Wherever possible, each provision of this Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or remaining provisions of
this Note. No delay or failure on the part of Lender in the exercise of any
right or remedy hereunder shall operate as a waiver thereof, nor as an
acquiescence in any default, nor shall any single or partial exercise by Lender
of any right or remedy preclude any other right or remedy. Lender, at its
option, may enforce its rights against any collateral securing this Note without
enforcing its rights against Borrower, any guarantor of the indebtedness
evidenced hereby or any other property or indebtedness due or to become due to
Borrower. Borrower agrees that, without releasing or impairing Borrower's
liability hereunder, Lender may at any time release, surrender, substitute or
exchange any collateral securing this Note and may at any time release any party
primarily or secondarily liable for the indebtedness evidenced by this Note.
This Note shall be governed by, and construed and enforced in
accordance with, the laws of the State of Illinois.
IN WITNESS WHEREOF, Borrowers have caused this Note to be duly executed
and delivered in Chicago, Illinois, on the date first above
written.
ARROW PACIFIC PLASTICS, INC.,
a Utah corporation ("Borrower")
By:
Name:
Title:
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
THIS AGREEMENT effective as of January 1, 1997, between Eagle Pacific
Industries, Inc., a Minnesota corporation (the "Company"), and Patrick M.
Mertens, a resident of Hastings, Nebraska ("Executive").
A. Executive has been and desires to remain employed as Chief Financial
Officer of the Company.
B. The Company desires to continue to retain the benefit of Executive's
experience and loyalty, and to continue to employ Executive as Chief Financial
Officer of the Company.
C. This Agreement replaces and supersedes any other employment
arrangements that Executive has with the Company or any of its subsidiaries.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
1. Definitions
The terms used in this Agreement shall be defined as follows:
(a) "Agreement" shall mean this Agreement as amended from time
to time.
(b) "Base Salary" shall mean the annual base salary payable to
Executive pursuant to Section 4(a) hereof.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Cause" shall mean termination of the Executive's
employment with the Company by the Board because of (1) gross misconduct; (2)
material breach of this Agreement by Executive; (3) conviction or entry of a
plea of guilty or nolo contendere to any felony or misdemeanor or the entry of
any final civil judgment in connection with any allegation of fraud,
misrepresentation, misappropriation or any other intentional tort or statute
violation; (4) insubordination; or (5) sexual harassment of fellow employees.
(e) "Committee" shall mean the Compensation Committee of the
Board, if one exists and, if not, shall mean the Board.
(f) "Company" shall mean Eagle Pacific Industries, Inc., a
Minnesota corporation, its successors or assigns.
(g) "Executive" shall mean Patrick M. Mertens, a resident of
Hastings, Nebraska.
(h) "Executive Benefit Plans" shall mean any plans within the
meaning of Sections 4(c) and (d) of this Agreement.
(i) "Period" shall mean the three year period commencing on
the date hereof. If the parties agree to any extension of the Period, the term
"Period" shall include all such extensions thereof.
(j) "Permanently Disabled" shall mean permanently prevented
from performing his obligations hereunder as a result of his physical or mental
health, as evaluated by sufficient documentation including doctors' statements.
(k) "Stock Options" shall mean any options held by Executive
granting him the right to acquire shares of common stock of the Company.
(l) "Substantial Breach" shall mean (1) a substantial
reduction in the nature or status of Executive's responsibilities hereunder;
provided, that it shall not be deemed to be a Substantial Breach if Executive's
duties are revised so that he remains an officer but is removed or not reelected
as Chief Financial Officer; (2) a reduction by the Company in the Base Salary of
Executive except to the extent permitted under Section 4(a) hereof; (3) the
failure by the Company to allow Executive to participate to the full extent in
all plans, programs or benefits in accordance with Sections 4(b) to (d),
inclusive, thereof; and (4) the failure by the Company to pay, distribute or
grant any amounts of cash, stock or other compensation to Executive to which he
is entitled. A Substantial Breach shall be deemed to occur only if such
Substantial Breach has not been corrected by the Company within two weeks of
receipt of notice from Executive of the occurrence of such Substantial Breach,
which notice shall specifically set forth the nature of the Substantial Breach.
2. Employment and Duties.
(a) General. The Company hereby employs Executive, and
Executive agrees upon the terms and conditions herein set forth to serve as an
officer of the Company and in such capacity, shall perform duties substantially
the same as normally performed by persons in like positions in similar
companies. Executive may be transferred, promoted or changed to another
position, and any such transfer, promotion or change shall not affect the
enforcement of this Agreement.
(b) No Other Employment. Throughout the time that Executive is
employed by the Company, Executive shall, except as may from time to time be
otherwise agreed in writing by the Company and unless prevented by ill health,
devote his full-time working hours to his duties hereunder and Executive shall
not, directly or indirectly, render services to any other person or organization
for which he receives compensation (excluding volunteer services or outside
Board activities with modest time commitments) without the consent of the Board
or otherwise engage in activities which would interfere significantly with the
performance of his duties hereunder.
3. Term of Employment. Subject to earlier termination of
employment pursuant to Sections 5, 6, 7 or 8 of this Agreement, the Company
shall retain Executive during the Period; and Executive shall serve in the
employ of the Company for the Period.
4. Compensation and Other Benefits. Subject to the provisions of
this Agreement, the Company shall pay and provide the following compensation and
other benefits to Executive during the term of his employment as compensation
for services rendered hereunder:
(a) Base Salary. The Company shall pay to Executive a Base
Salary at the rate of $90,000 per annum, payable in accordance with the
Company's standard payroll policies. The Company shall be entitled to deduct or
withhold all taxes and charges which the Company may be required to deduct or
withhold therefrom. The Base Salary will be reviewed not less than annually by
the Committee.
(b) Incentive Compensation. At all times during the Period,
Executive shall be entitled to participate in all incentive compensation plans
and programs of the Company, existing from time to time including the EBITDA
bonus plan established by the Committee and described in Exhibit A attached
hereto. For calendar year 1997, Executive's maximum bonus under the EBITDA bonus
plan shall be twenty one thousand dollars ($21,000) and shall be based entirely
on the Company's EBITDA.
(c) Stock Options. Executive shall be entitled to participate
in all stock option plans and programs of the Company existing from time to time
other than plans that exclude executive employees generally.
(d) Other Executive Benefit Plans. Executive shall be eligible
to participate in all pension and welfare plans and programs of the Company for
executive employees, existing from time to time, including, without limitation,
the following:
(i) All qualified benefit plans and programs (e.g.,
defined contribution, supplemental retirement and Section
401(k) plans, long-term disability and life insurance plans
and programs);
(ii) All hospitalization and medical plans and
programs; and
(iii) All retirement plans and programs.
5. Termination of Employment for Cause.
(a) Compensation and Benefits. If, prior to the expiration of
the Period, (i) Executive's employment is terminated by the Company for Cause,
or (ii) Executive resigns from his employment hereunder other than under
circumstances covered by Section 6 below, Executive shall not be eligible to
receive any compensation or benefits or to participate in any plans or programs
under Section 4 hereof with respect to the Period after the date of such
termination except for the right to receive benefits under any plan or program,
to the extent vested, in accordance with the terms of such plan or program and
except for benefits provided in accordance with customary practices of the
Company at Executive's expense (e.g., hospitalization and medical insurance).
(b) Date of Termination. The date of termination of
Executive's employment by the Company under this Section 5 shall be two (2)
weeks after receipt by Executive of written notice of termination for Cause or
after receipt by the Company of written notice of Executive's resignation.
6. Termination of Employment Without Cause or Resignation After
Substantial Breach.
(a) Compensation and Benefits. If, prior to the expiration of
the Period, Executive 's employment is terminated by the Company without Cause,
or if, prior to the expiration of the Period Executive resigns from his
employment hereunder following a Substantial Breach, the Company shall pay
Executive an amount equal to Executive's then current Base Salary in twenty-four
(24) equal monthly installments beginning one month after Executive's
termination of employment.
(b) Date of Termination. The date of termination of
Executive's employment by the Company under this Section 6 shall be the date
specified in the written notice of termination to Executive, or if no such date
is specified therein, the date on which such notice is given to Executive. The
date of resignation by Executive under this Section 6 shall be two weeks after
receipt by the Company of written notice of resignation, provided that the
Substantial Breach specified in such notice shall not have been corrected by the
Company during such two week period.
7. Termination of Employment by Disability.
(a) Compensation and Benefits. If Executive becomes
Permanently Disabled prior to the expiration of the Period, the Company shall be
entitled to terminate Executive's employment at the later of (x) six months from
the date Executive becomes Permanently Disabled but not beyond the end of the
Period or (y) the date the Company could terminate Executive in accordance with
the Company's normal policies in such matters as applied to all other salaried
employees. In the event of such termination of Executive's employment, Executive
shall be entitled to receive from the Company the following:
(i) Executive shall be entitled to continued
participation in hospital and medical plans and programs of
the Company in accordance with Company policy as it pertains
to disabled salaried employees; that is for the period of said
disability or until normal retirement age subject to the rules
and practice of the plan(s).
(ii) Executive shall be entitled to received benefits
under any other Company plan or program (to the extent
Executive is vested) in accordance with the terms of such plan
or program.
(b) Date of Termination. The date of termination of
Executive's employment under Section 7 shall be the date determined pursuant to
Section 7(a) above.
8. Termination of Employment by Death.
(a) Compensation and Benefits. If Executive dies prior to the
expiration of the Period, the Executive's estate or his beneficiary as
appropriate shall be entitled to receive benefits under the Company's plan(s) or
program(s) in accordance with the terms of such plan(s) or program(s).
9. Termination of Employment by Nonrenewal of This Agreement. If
Executive is employed by the Company at the end of the Period (and the Period is
not extended by mutual agreement of Executive and the Company), the Company
shall pay Executive an amount equal to Executive's then current Base Salary in
twenty-four (24) equal monthly installments beginning one month after
Executive's termination of employment.
10. Noncompetition. During the terms of Executive's employment
with the Company and for twelve (12) months thereafter, Executive shall refrain
from directly or indirectly, on his own behalf or on behalf of any other person
or entity, compete with the Company or any of its subsidiaries, anywhere in the
continental United States, including but not limited to directly or indirectly
rendering any services, advice or counsel in any capacity whatsoever, for any
entity or person that engages in or is in the process of or anticipates engaging
in any business which in any manner competes with the Company or any of its
subsidiaries. In the event that Executive violates the terms of this Article 10,
the term of this covenant not to compete shall be extended for a period of time
equal to the period of time that Executive was violating the terms of this
Section 10.
11. Nondisclosure of Confidential Information.
a. Definition. For purposes of this Agreement "Confidential
Information" means any information or compilation of information, not generally
known, which is proprietary to the Company and relates to the Company's existing
or reasonably foreseeable business, including, but not limited to, trade secrets
and information relating to the Company's services, marketing plans or proposals
and customer information. All information which the Company identifies as being
"confidential" or "trade secret" shall be presumed to be Confidential
Information. Confidential Information shall also include any confidential
information of a parent, subsidiary or sister corporation of the Company and any
information disclosed by a third party under contract with the Company which
contract requires such disclosed information be kept confidential. Confidential
Information shall not include information that is in or enters the public domain
other than through a breach of confidentiality owed to the Company.
b. Nondisclosure. During the Period and at all times
thereafter, Executive shall hold in strictest of confidence and will never
disclose, furnish, transfer, communicate, make assessable to any person or use
in any way Confidential Information for Executive's own or another's benefit or
permit the same to be used in competition with the Company, nor will Executive
accept any employment which would, by the nature of the position, inherently
involve the use or disclosure by Executive of Confidential Information.
12. Injunctive Relief. The parties acknowledge that the Company
and/or its subsidiaries will suffer irreparable harm if Executive breaches
Sections 10 or 11 of this Agreement. Accordingly, the Company shall be entitled,
in addition to any other rights and remedies that it may have, at law or at
equity, to an injunction, without the parting of a bond or other security,
enjoining or restraining Executive from any violation of Sections 10 or 11 of
this Agreement. Executive hereby consents to the Company's right to the issuance
of such injunction.
13. Binding Agreement. This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto, any Successor to or assigns of the
Company, and Executive's heirs and the personal representative of Executive's
estate.
14. Severability. If the final determination of a court of
competent jurisdiction declares, after the expiration of the time within which
judicial review (if permitted) of such determination may be perfected, that any
term of provision hereof is invalid or unenforceable, (a) the remaining terms
and provisions hereof shall be unimpaired and (b) the invalid or unenforceable
term or provision shall be deemed replaced by a term or provision that is valid
and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision.
15. Amendment; Waiver. This Agreement may not be modified, amended
or waived in any manner except by an instrument in writing signed by both
parties hereto. The waiver by either party of compliance with any provision of
this Agreement by the other party shall not operate or be construed as a waiver
of any other provision of this Agreement, or of any subsequent breach by such
party of a provision of this Agreement.
16. Governing Law. All matters affecting this Agreement, including
the validity thereof, are to be governed by, interpreted and construed in
accordance with the laws of the State of Minnesota.
17. Notices. Any notice hereunder by either party to the other
shall be given in writing by personal delivery or certified mail, return receipt
requested. If addressed to Executive, the notice shall be delivered or mailed to
Executive at the address specified under Executive's signature hereto or such
other address which Executive has advised the Company to send notice to, or if
addressed to the Company, the notice shall be delivered or mailed to the Company
at its executive offices and to the attention of each member of the Board of
Directors of the Company at their respective business addresses. A notice shall
be deemed given, if by personal delivery, on the date of such delivery or, if by
certified mail, on the date shown on the applicable return receipt.
IN WITNESS WHEREOF, the Company has caused the Agreement to be signed
by its officer pursuant to the authority of its Board, and Executive has
executed this Agreement, as of the day and year first written above.
EAGLE PACIFIC INDUSTRIES, INC.
By _________________________________
William H. Spell, CEO
____________________________________
Patrick M. Mertens
EXHIBIT A
EAGLE PACIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
EBITDA BONUS PLAN
The following is a summary of the Eagle Pacific Industries, Inc. and
Subsidiaries EBITDA Bonus Plan.
"EBITDA" shall mean the earnings before interest, taxes, depreciation and
amortization for the particular company determined by the auditors for Eagle
Pacific Industries, Inc. ("EPII") in accordance with GAAP for each fiscal year
of EPII.
At or before the beginning of each fiscal year, the Board of Directors of EPII
shall establish three levels of EBITDA for EPII and for each of its
subsidiaries. If the lowest level is achieved, each employee participating in
the EBITDA Bonus Plan will receive one-third of his/her maximum bonus. If the
second highest level of EBITDA is achieved, each employee participating in the
EBITDA Bonus Plan will receive two-thirds of his/her maximum bonus. If the
highest level of EBITDA is achieved, each employee participating in the EBITDA
Bonus Plan will receive his/her maximum bonus. At the same time the Board of
Directors of EPII shall establish the eligible employees, the maximum amount of
their bonuses and the company or companies on which the bonus will be based for
that year.
An employee must be employed by the Company or one of its subsidiaries on the
last day of the fiscal year in order to be entitled to receive any EBITDA bonus
for that year.
EXHIBIT 10.17
AMENDMENT AGREEMENT
This AMENDMENT AGREEMENT ("Agreement") is made and entered into as of
May 10, 1996 by and between WILLIAM BLAIR MEZZANINE CAPITAL FUND, L.P., an
Illinois limited partnership ("Blair"); and EAGLE PLASTICS, INC., a Nebraska
corporation ("Eagle"), PACIFIC PLASTICS, INC., an Oregon corporation
("Pacific"), ARROW PACIFIC PLASTICS, INC., a Utah corporation ("Arrow"), and
EAGLE PACIFIC INDUSTRIES, INC., a Minnesota corporation ("EPII") (Eagle,
Pacific, Arrow and EPII are sometimes referred to herein collectively as the
"Company").
R E C I T A L S
A. Pursuant to that certain Plan of Recapitalization dated as of
March 16, 1995 by and among Blair, Eagle and EPII (f/k/a Black
Hawk Holdings, Inc.), (1) the parties entered into a Debenture
Acquisition Agreement of even date therewith (the "Debenture
Acquisition Agreement"), (2) Blair was issued (a) a senior
subordinated debenture of Eagle having a principal amount of
$7,500,000 (the "Debenture"), the obligations of which were
guaranteed by EPII pursuant to a guarantee of even date
therewith from EPII (the "Guarantee"), (b) a warrant to
purchase 100,000 shares of the common stock of EPII at $3.00
per share (the "Warrant") and (c) 210,000 shares of the common
stock of EPII and (3) Blair was granted, among other things,
the right to receive certain cash payments, $970,000 of which
remains outstanding and is due to be paid on or before
September 1, 1996 (the "Deferred Cash Payment").
B. As an inducement for Blair's consent to a refinancing of the
Company's senior indebtedness by Fleet Capital Corporation
(the "New Senior Lender") to be consummated on the date
hereof, the parties hereto desire to amend selected terms of
the Debenture Acquisition Agreement and the Debenture in
exchange for certain financial accommodations to Blair
(including, without limitation, the prepayment of the Deferred
Cash Payment and a partial prepayment of amounts due under the
Debenture), all as hereinafter set forth.
A G R E E M E N T S
NOW, THEREFORE, in consideration of the agreements set forth herein,
and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:
1. Incorporation of Recitals. The foregoing recitals are
incorporated herein by reference and made a part of this
Agreement.
2. Amendment of the Debenture Acquisition Agreement and the
Debenture. Subject to the Company's performance of its
obligations to Blair hereunder on the date hereof, Blair
hereby consents to the consummation of the refinancing
transaction contemplated by that certain Loan and Security
Agreement of even date herewith (the "Credit Agreement") by
and between the New Senior Lender and the Company. To
facilitate the consummation of such transaction, the parties
hereto agree to amend the terms of the Debenture Acquisition
Agreement and the Debenture as follows:
(a) The Debenture Acquisition Agreement shall be amended
as follows:
(i) The following (and only the following)
definitions contained in Section 1.1 of the Debenture
Acquisition Agreement shall be deleted in their entirety and
replaced with the following:
"New Guarantee shall mean (a) the guarantee
dated as of March 16, 1995, executed by one of the
Guarantors in favor of Purchaser in the form of
Exhibit D hereto, and (b) the guarantee dated as of
May 10, 1996, executed by the other Guarantors in
favor of Purchaser.
Purchase Agreement shall mean (a) that
certain agreement dated September 16, 1993 among
Acquisition Corp., Eagle Pacific Industries, Inc.
and, prior to the merger, Eagle Plastics,
Incorporated, and the individual sellers named
therein, and (b) exclusively for purposes of Section
5.1(q) and 5.2(v) hereof, any other agreement
hereafter entered into by Borrower or any Guarantor
(with Purchaser's prior consent, as applicable,
hereunder) to acquire any interest in any business
(whether by a purchase of assets, purchase of stock,
merger or otherwise) or enter into any joint venture
with any Person.
Registration Rights Agreement shall mean the
registration rights agreement between Eagle Pacific
Industries, Inc. and Purchaser of even date herewith
in the form of Exhibit E hereto, as hereafter amended
from time to time.
Related Transactions Documents shall mean
the Plan of Recapitalization, this Agreement, the
Senior Subordinated Debenture, the New Guarantee, the
Registration Rights Agreement, the Common Stock
Warrant, the Subordinated Loan Documents, the
Purchase Agreement, the Senior Loan Agreement and any
and all other documents, agreements, certificates and
instruments executed or delivered to Purchaser in
connection herewith or therewith (including, without
limitation, any amendments or modifications thereto).
Restricted Investments shall mean all
Investments in any Person or in any property, except
(a) Investments in one or more subsidiaries of a
Guarantor to the extent existing on May 10, 1996, (b)
Investments constituting Senior Indebtedness, (c)
Investments that constitute loans or advances (which
are permitted by the terms of the Senior Loan
Agreement) by Borrower to any Guarantor or by any
Guarantor to Borrower or any other Guarantor, (d)
Investments resulting from the acquisition of shares
of capital stock in Borrower by Eagle Pacific
Industries, Inc. pursuant to that certain Eagle Stock
Agreement dated December 17, 1993 by and among Eagle
Pacific Industries, Inc. (f/k/a Black Hawk Holdings,
Inc.), Borrower, Larry D. Schnase, George Peter Konen
and David Schnase (the "Eagle Stock Agreement") as in
effect on May 10, 1996, (e) property acquired for the
business use of Borrower or any Guarantor and not for
investment in other businesses, (f) current assets
arising from the purchase or sale of goods and
services in the ordinary course of business, (g)
securities issued or fully guaranteed or insured by
the United States of America or any agency thereof
(supported by the full faith and credit of the United
States of America) and maturing within one year, (h)
time deposits and certificates of deposits of a
commercial bank organized under the laws of the
United States of America having capital and surplus
in excess of $100,000,000 (or up to the Federal
Deposit Insurance Corporation's insured amount) and
maturing within one year, (i) commercial paper of any
United States' corporation rated at least A-1 by
Standard & Poor's Corporation or at least P-1 by
Moody's Investors Service, Inc. and maturing within
one year, and (j) Investments in money market funds
substantially all of whose assets are comprised of
securities of the type described in (g) through (i)
above.
Senior Indebtedness shall mean any and all
obligations, indebtedness and liabilities now or
hereafter owing or due from Borrower and Guarantors
to Senior Lender under the Senior Loan Agreement;
provided, however, that Senior Indebtedness shall not
include:
(a) increases in the principal
amount of the indebtedness of Borrower to
Senior Lender in excess of Twenty-Eight
Million Seven Hundred Fifty Thousand Dollars
($28,750,000) minus all principal payments
made in respect of the Term Loan (as defined
in the Senior Loan Agreement);
(b) increases in the portion of
interest that accrues in respect of the
indebtedness of Borrower to the Senior
Lender at a rate in excess of the otherwise
applicable interest rate (or default rate)
(including any adjustable rate or rate to be
reset pursuant to the terms of the Senior
Loan Agreement) provided for under the
Senior Loan Agreement as in effect on May
10, 1996; or
(c) increases in the fees, charges
or expenses (regardless of when incurred)
provided for under the Senior Loan Agreement
as in effect on May 10, 1996, which
increases exceed in the aggregate Two
Hundred Fifty Thousand Dollars ($250,000).
Senior Lender shall mean Fleet Capital
Corporation or any successor thereto.
Senior Loan Agreement shall mean the Loan
and Security Agreement dated May 10, 1996 by and
between Senior Lender, Borrower and Guarantors. The
Senior Loan Agreement shall include all other
documents, agreements, certificates and instruments
attached thereto, referred to therein or delivered in
connection therewith as any or all of the foregoing
may be supplemented or amended from time to time in
accordance with the provisions hereof."
(ii) Section 2.2 of the Debenture Acquisition
Agreement shall be deleted in its entirety and replaced with
the following:
"Subject to Section 2.4 hereof, on May 10,
1999, Borrower shall repay the principal amount of
the Senior Subordinated Debenture in full, together
with all Fixed Interest."
(iii) The following sentence shall be inserted at the
end of Section 2.4(c):
"In connection with any prepayments, Purchaser shall,
and is hereby authorized by Borrower to, endorse on
the schedules annexed to the Senior Subordinated
Debenture appropriate notations regarding the Senior
Subordinated Debenture as specifically provided
therein, which notations shall be presumed correct
until the contrary is established."
(iv) Sections 5.1(i), 5.1(j) and 5.2(t) of the
Debenture Acquisition Agreement shall be deleted in their
entirety.
(v) The following shall be inserted at the end of
Section 5.1 of the Debenture Acquisition Agreement as new
subsections (t) through (v) thereof:
"(t) Consolidated Adjusted Tangible Net
Worth. Borrower and Guarantors shall maintain at all
times within each of the following periods, a
Consolidated Adjustable Tangible Net Worth (as
defined in the Senior Loan Agreement) of not less
than the amount shown below for the period
corresponding thereto:
Period Amount
------ ------
June 30, 1996 through and ($1,200,000)
including September 29, 1996
September 30, 1996 through and ($300,000)
including December 30, 1996
December 31, 1996 through and $0
including March 30, 1997
March 31, 1997 through and $100,000
including June 29, 1997
June 30, 1997 through and $1,100,000
including September 29, 1997
September 30, 1997 through and $2,000,000
including December 30, 1997
December 31, 1997 through and $2,300,000
including March 30, 1998
March 31, 1998 through and $2,400,000
including June 29, 1998
June 30, 1998 through and $3,400,000
including September 29, 1998
September 30, 1998 through and $4,300,000
including December 30, 1998
December 31, 1998 through and $4,600,000
including March 30, 1999
March 31, 1999 through and $4,700,000
including each fiscal quarter
thereafter
(u) Consolidated Net Cash Flow. Borrower and
Guarantors shall achieve Consolidated Net Cash Flow
(as defined in the Senior Loan Agreement) for each of
the periods listed below equal to or greater than the
amount set forth opposite such period:
Period Amount
------ ------
January 1, 1996 through and $135,000
including June 30, 1996
January 1, 1996 through and $585,000
including September 30, 1996
January 1, 1996 through and $450,000
including December 31, 1996
January 1, 1997 through and ($550,000)
including March 31, 1997
January 1, 1997 through and $135,000
including June 30, 1997
January 1, 1997 through and $585,000
including September 30, 1997
January 1, 1997 through and $450,000
including December 31, 1997
January 1, 1998 through and ($550,000)
including March 31, 1998
January 1, 1998 through and $135,000
including June 30, 1998
January 1, 1998 through and $585,000
including September 30, 1998
January 1, 1998 through and $450,000
including December 31, 1998
January 1, 1999 through and ($550,000)
including March 31, 1999
(v) Senior Interest Coverage Ratio. Borrower
and Guarantors shall achieve, at the end of each
fiscal quarter within the term hereof, a Senior
Interest Coverage Ratio (as defined in the Senior
Loan Agreement) equal to or greater than the ratio
shown below for the quarter corresponding thereto:
Fiscal Quarter Ending Ratio
--------------------- -----
March 31 1.45 to 1
June 30 3.15 to 1
September 30 4.05 to 1
December 31 2.15 to 1"
(vi) The following shall be inserted at the end of
Section 5.2(a) of the Debenture Acquisition Agreement as new
subsections (iv) through (viii) thereof:
"(iv) Indebtedness for assets purchased
which is secured by a purchase money lien and which,
when aggregated with the principal amount of all
other such Indebtedness and Capitalized Lease
Obligations at the time outstanding, does not exceed
(i) $1,250,000 until the capitalized leases listed on
Exhibit K to the Senior Loan Agreement are retired
and (ii) $400,000 thereafter;
(v) Indebtedness outstanding under that
certain Redevelopment Contract between the City of
Hastings, Nebraska, and Guarantor, and related
promissory notes as in effect on May 10, 1996;
(vi) Indebtedness incurred in connection
with the acquisition of approximately 30 acres of
vacant land in Hembree, Oregon, in a principal amount
not to exceed $103,000;
(vii) Indebtedness outstanding under that
certain Promissory Note and Stock Pledge Agreement
dated as of July 10, 1995 between Eagle Pacific
Industries, Inc., Pacific Acquisition Corp., Pacific
Plastics, Inc. and the selling shareholder
signatories thereto, as in effect on May 10, 1996;
and
(viii) Indebtedness not included in
subsections (i) through (vii) above which does not
exceed at any time, in the aggregate, the sum of
$250,000."
(vii) The clause "its fiscal year does not exceed
$175,000" at the end of Section 5.2(d) of the Debenture
Acquisition Agreement shall be deleted and replaced with "any
current or future period of 12 consecutive months does not
exceed $500,000".
(viii) The first two sentences of Section 5.2(g) of
the Debenture Acquisition Agreement shall be deleted in their
entirety and replaced with the following:
"Neither Borrower nor any Guarantor shall
directly or indirectly (i) declare or pay any
Dividends on its capital stock, (ii) make or incur
any liability to make any Stock Purchase or (iii)
make any Restricted Investments. Notwithstanding the
foregoing and provided that, in any of the following
cases, no Event of Default has then occurred and is
continuing or would result from the taking of such
action, Borrower and/or Guarantor may: (A) pay up to
$195,000 in annual Dividends on Eagle Pacific
Industries, Inc.'s convertible preferred stock
outstanding on May 10, 1996 (the "EPII Preferred"),
until such time as the EPII Preferred is converted as
provided herein; (B) convert all or a portion of the
shares of EPII Preferred into common stock of Eagle
Pacific Industries, Inc. at a conversion price which
is not less than $1.75 per share; and (C) acquire the
shares of capital stock of Borrower held by Larry D.
Schnase and George Peter Konen as of May 10, 1996
pursuant to the Eagle Stock Agreement as in effect on
May 10, 1996, provided that the aggregate purchase
price for such shares does not exceed (x) $575,000
for the calendar year ending December 31, 1996, and
(y) the lesser of (1) the purchase price per share of
such common stock multiplied by 157,000 shares, or
(2) $1,000,000, for each calendar year ending
December 31, 1997 and December 31, 1998."
(ix) The following paragraph shall be inserted at the
end of Section 5.2 of the Debenture Acquisition Agreement as
Section 5.2(w) thereof:
"(w) Capital Expenditures. Neither Borrower
nor any Guarantor shall, unless otherwise consented
to by Purchaser in writing, make Capital Expenditures
(as defined in the Senior Loan Agreement) which, in
the aggregate, as to Borrower and Guarantors during
any fiscal year of Borrower, exceeds the amount set
forth opposite such fiscal year in the following
schedule:
Fiscal Year Ending Capital Expenditure
------------------ -------------------
December 31, 1996 $2,850,000
December 31, 1997 $1,650,000
December 31, 1998 and
each subsequent fiscal year $1,650,000"
(x) The clause "or any other agreement to which
Purchaser and either Borrower or Guarantor are parties" shall
be inserted following the term "Senior Subordinated Debenture"
in subsection (iii) of Section 6.1(a) of the Debenture
Acquisition Agreement.
(xi) Section 6.4 of the Debenture Acquisition
Agreement shall be deleted in its entirety and replaced with
the following:
"Subordination. This Agreement (including,
without limitation, exercise of the rights set forth
in Section 6.2 hereof) and the Senior Subordinated
Debenture are subject to certain subordination
provisions set forth in that certain Intercreditor
and Subordination Agreement dated as of May 10, 1996
by and between Purchaser and the Senior Lender and
all of the terms and provisions thereof are
incorporated by reference into this Agreement and
made a part hereof."
(xii) All references in the Debenture Acquisition
Agreement to the defined term "Guarantor" shall be construed
as a reference to EPII, Pacific and Arrow collectively or, as
the context may require, any one or more of EPII, Pacific and
Arrow.
(b) The Debenture shall be amended as follows:
(i) The first sentence of Section 3 of the Debenture
shall be deleted in its entirety and replaced with the
following:
"The aggregate principal of this Debenture
shall be payable on May 10, 1999 together with all
Fixed Interest."
(ii) Section 6 of the Debenture shall be deleted in
its entirety and replaced with the following:
"Subordination. This Debenture shall be
subject to the terms and provisions of that certain
Intercreditor and Subordination Agreement dated as of
May 10, 1996 by and between Payee and Senior Lender."
3. Performance of the Company's Obligations. On the date hereof:
(a) Eagle and EPII shall pay to Blair in cash, by wire
transfer to the account specified in Section 2.5 of the Debenture
Acquisition Agreement, $970,000 as a prepayment in full of the Deferred
Cash Payment;
(b) Eagle shall pay to Blair in cash, by wire transfer to the
account specified in Section 2.5 of the Debenture Acquisition Agreement
the following:
(i) all accrued Fixed Interest as defined in and
payable pursuant to the Debenture through and including the
date hereof; and
(ii) $3,000,000, to be treated as a partial
prepayment against the outstanding principal amount of the
Debenture;
(c) that certain Registration Agreement dated March 16, 1995
(the "Registration Agreement") by and between EPII and Blair shall be
amended as set forth in Section 5 hereof;
(d) the Warrant shall be amended as set forth in Section 6
hereof;
(e) the applicable parties shall concurrently herewith execute
and deliver the following agreements and instruments (the form and
substance of which are satisfactory to Blair and its counsel):
(i) a Guarantee executed by Pacific and Arrow in
favor of Blair, pursuant to which Pacific and Arrow guarantee
Eagle's obligations under the Debenture Acquisition Agreement
and the Debenture;
(ii) a Warrant in favor of Blair, exercisable for
215,000 shares of common stock of EPII at an exercise price of
$3.25 per share (the "New Common Stock Warrant");
(iii) an Intercreditor and Subordination Agreement by
and between Blair and the New Senior Lender;
(iv) a Co-sale Agreement by and between Blair and
Richard W. Perkins, Bruce A. Richards, Harry W. Spell, William
H. Spell and the Spell Family Foundation;
(v) an Irrevocable Proxy by Blair in favor of EPII;
(vi) the written opinion of Fredrikson & Byron, P.A.,
counsel to the Company;
(vii) certified copies of all documents evidencing
corporate action taken by the Company with respect to this
Agreement and the other matters contemplated hereby; and
(viii) a certificate, signed by the secretary or an
assistant secretary of EPII, certifying as to (A) the names of
the officers of the Company authorized to sign the
above-referenced agreements and instruments and all other
documents and instruments executed and/or delivered in
connection herewith or therewith, (B) specimens of the true
signatures of such officers, on which Blair may conclusively
rely, (C) the truth and correctness of that certain Eagle
Stock Agreement dated December 17, 1993, between Eagle Pacific
Industries, Inc., Borrower, Larry D. Schnase, George Peter
Konen and David Schnase as in effect on the date hereof and
(D) the truth and completeness of documents and instruments
executed and/or delivered in connection with (1) the
refinancing of the senior indebtedness by the New Senior
Lender, (2) the sale of common stock of EPII to Okabena
Partnership K ("Okabena"), (3) the sale of the common stock of
EPII to Kennedy Capital Management and (4) the amendment to
the registration and stock repurchase rights of Loyal
Sorensen, Zelda Sorensen, Jarred Thompson and Sharron
Thompson.
4. Affirmation of Guarantee. EPII hereby acknowledges that the
Debenture Acquisition Agreement is being amended hereby and
hereby also acknowledges and affirms that (a) the Guarantee is
in full force and effect and the liability of EPII as
Guarantor under the Guarantee continues in accordance with the
terms of the Guarantee and is in no way affected or impaired
by such amendment to the Debenture Acquisition Agreement, (b)
Blair's agreement to such amendment is in Blair's sole
discretion, (c) Blair is not required to provide notice to
anyone of such amendment and (d) Blair's provision of such
notice to EPII, as guarantor, shall not operate as a waiver of
Blair's right to agree to further amendments in its sole
discretion without notice to EPII or any other person that is
or shall be a guarantor of the Company's obligations under the
Debenture Acquisition Agreement.
5. Amendment of the Registration Agreement. The parties hereto
agree to amend the terms of the Registration Agreement as
follows:
(a) Section 1(c) of the Registration Agreement shall be
deleted in its entirety and replaced with the following:
"REGISTRABLE SHARES" shall mean (i) the 210,000
Shares of Company Common Stock issued to the Investor under
the Plan of Recapitalization, (ii) the 225,000 Shares of
Company Common Stock issued to the Investor under that certain
Subordinated Loan Agreement dated December 17, 1993 by and
among the Investor, the Company and Eagle Plastics, Inc.,
(iii) up to 100,000 Shares of Company Common Stock that may be
issued to the Investor upon exercise of the Warrant, (iv) up
to 215,000 Shares of Company Common Stock that may be issued
to the Investor upon exercise of that certain Warrant issued
to the Investor under that certain Amendment Agreement dated
as of May 10, 1996 by and between the Investor, the Company
and certain other parties thereto (the "New Warrant") and (v)
any further securities issued with respect thereto upon any
stock split, stock dividend, recapitalization or similar
event, so long as such shares or other securities are owned by
the Investor or any other person to whom the Investor shall
assign all or a portion of its rights hereunder.
(b) Section 3(a) of the Registration Agreement shall be
amended by deleting the clause "On a one-time basis only," in the first
sentence thereof and replacing it with the clause "On no more than two
occasions,".
(c) Clause (1) of Section 3(b) of the Registration Agreement
shall amended by deleting the words "of the issuance of the Investor's
Shares" and replacing them with the date "May 10, 1996".
(d) The following Clause (3) of Section 3(b) of the
Registration Agreement shall be inserted at the end of Section 3(b)
before the ".":
"; and (3) three years from the earlier of complete
exercise or termination of the New Warrant with respect to the
Shares of Common Stock issuable upon exercise of the New
Warrant"
6. Amendment of the Warrant. The parties hereto agree to amend
the terms of the Warrant as follows:
(a) Section 5(a) of the Warrant shall be amended by inserting
the parenthetical "(including the maximum number of shares of Common
Stock issuable in respect of any securities convertible into Common
Stock)" immediately after the phrase "prior to such event" in the
fourth line following clause (iii).
(b) Section 5(b) of the Warrant shall be amended by adding the
following at the end of Section 5(b) before the ".":
"; provided, however, that no such adjustment in the Warrant
Exercise Price shall be made upon the issuance of shares of
Common Stock pursuant to (i) options, warrants, convertible
securities and other rights to acquire shares listed on
Schedule 1 to that certain Amendment Agreement dated May 10,
1996 by and between Blair, the Company, Eagle Plastics, Inc.,
Pacific Plastics, Inc. and Arrow Pacific Plastics, Inc. or
(ii) the conversion or exercise into shares, and related
issuance, of Common Stock pursuant to any warrant, option or
other right to acquire shares of Common Stock that, upon the
issuance of such warrant, option or other right did not
require an adjustment to the Warrant Exercise Price pursuant
hereto."
7. Representations and Warranties of the Company. As a further
inducement for Blair to consent to the refinancing of the
Company's senior indebtedness by the New Senior Lender, the
Company hereby represents and warrants to Blair that:
(a) The Company (and each of them) has the requisite corporate
power and authority to execute, deliver and carry out this Agreement,
all other agreements and instruments contemplated or required by the
provisions thereof and to be executed, delivered or carried out by the
Company (or any of them) (collectively, the "Ancillary Agreements") and
the transactions contemplated hereby and thereby.
(b) The execution and delivery of this Agreement and the
Ancillary Agreements, and the consummation by the Company of the
transactions contemplated hereby or thereby has been duly authorized by
all necessary corporate action and other consents, approvals and the
like required on the part of the Company.
(c) Neither the execution and delivery by the Company (or any
of them) of this Agreement or any of the Ancillary Agreements, nor the
consummation of the transactions contemplated hereby or thereby, nor
compliance by the Company with the terms, conditions and provisions
hereof or thereof, shall (i) conflict with or result in a breach of the
terms, conditions or provisions of, (ii) constitute a default under,
(iii) result in the creation of any lien, security interest, charge or
encumbrance upon its capital stock or assets pursuant to, (iv) give any
third party the right to accelerate any obligation under, (v) result in
a violation of or (vi) require any authorization, consent, approval,
exemption or other action by or notice to any court or administrative
or governmental body pursuant to, the articles of incorporation or
bylaws of the Company (or any of them) or any law, statute, rule or
regulation to which the Company (or any of them) is subject, or any
agreement, instrument, order, judgment or decree to which the Company
(or any of them) is subject.
(d) This Agreement and each of the Ancillary Agreements to
which the Company (or any of them) is a party have been duly and
validly executed and delivered by Eagle, Pacific, Arrow and/or EPII (as
the case may be) and constitute legal, valid and binding obligations,
and all such obligations of the Company (or any of them) are
enforceable in accordance with their respective terms.
(e) Except for fees payable to BA Securities, Inc. in an
amount not to exceed $345,000, there are no claims for brokerage
commissions, finders' fees or similar compensation in connection with
the transactions contemplated by this Agreement based on any
arrangement or agreement binding upon the Company (or any of them).
(f) At the time of their issuance, the shares issuable
pursuant to the New Common Stock Warrant and the Warrant (the "Warrant
Shares") shall be validly issued, fully paid and nonassessable and free
and clear of any and all liens, claims, encumbrances and the like.
(g) The issuance of the Warrant Shares has been duly
authorized by all necessary corporate action on the part of the Company
and no vote, g) The issuance of the Warrant Shares has been duly
authorized by all necessary corporate action on the part of the Company
and no vote, authorization, consent or approval of the shareholders of
the Company (or any of them) is necessary for the issuance of the
Warrant Shares.
(h) (i) All of the outstanding shares of capital stock of
EPII, as of the date hereof, are validly issued, fully paid
and nonassessable. Except as set forth on Schedule 1 attached
hereto, there are not outstanding any shares of stock,
securities, rights or options convertible or exchangeable into
or exercisable for any shares of EPII's capital stock, stock
appreciation rights or phantom stock, nor is or was EPII under
any obligation (contingent or otherwise) to redeem or
otherwise acquire any shares of its capital stock or any
securities, rights or options to acquire such capital stock,
stock appreciation rights or phantom stock. To the best of the
Company's knowledge, Schedule 1 hereto sets forth a complete
and accurate list as of the date hereof of the names of, and
the respective ownership of any person or group of persons
holding 5% or more of such capital stock of EPII other than
Blair.
(ii) There are no statutory or contractual
stockholders' preemptive rights with respect to the issuance
of the New Common Stock Warrant, EPII has not violated any
applicable federal or state securities laws in connection with
the offer, sale or issuance of any of its capital stock or
warrants (which, in the case of EPII for periods prior to
January 1, 1986, could result in a material adverse effect on
its business, operations, properties, financial condition,
operating results or business prospects) and, assuming the
truth and accuracy of Blair's representations and warranties
under Section 9(b) hereof, the issuance of the New Common
Stock Warrant does not require registration under the
Securities Act of 1933, as amended from time to time (together
with any rules and regulations thereunder)(the "Securities
Act") or any applicable state securities laws. Except as set
forth on Schedule 1 hereto, there are no agreements between
EPII's stockholders with respect to the voting or transfer of
EPII's capital stock or with respect to any other aspect of
EPII's affairs (it being understood that, unless the contrary
is known by EPII on the date hereof, the representation and
warranty in this sentence shall not apply to any person or
group of persons holding less than 5% of EPII's common stock).
(iii) EPII has filed all forms, statements,
schedules, exhibits, reports and other documents with the SEC
required by it pursuant to the federal securities laws and the
SEC rules and regulations thereunder, all of which have
complied as of their respective filing dates with all
applicable requirements of the Securities Act and the
Securities Exchange Act of 1934, as amended from time to time
(the "Exchange Act"), and any rules or regulations promulgated
thereunder. The representation and warranty in the immediately
preceding sentence shall not apply to EPII for periods prior
to January 1, 1986, unless its failure to so file or comply
could result in a material adverse effect on its business,
operations, properties, financial condition, operating results
or business prospects.
(i) Neither this Agreement nor any of the Ancillary Agreements
contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained
herein and therein not misleading. There is no fact known to the
Company (or any of them) (other than general conditions which are a
matter of public knowledge) which materially adversely affects the
business, operations, properties, financial condition, operating
results or business prospects of the Company (or any of them). All
documents filed by EPII pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act contain all statements that are required by the
Exchange Act and do not contain any untrue statement of a material fact
or omits to state a material fact necessary in order to make the
statements contained therein not misleading.
8. Waiver of Breach. Blair hereby waives any and all breaches of
the terms of the Debenture Acquisition Agreement and the
Debenture resulting from (a) the execution and delivery by the
Company of this Agreement and the other agreements and
instruments to be executed and delivered hereunder, (b) the
refinancing transaction contemplated by the Credit Agreement
and the use of proceeds permitted thereby, (c) the sale of
common stock of EPII to Okabena, (d) the sale of common stock
of EPII to Kennedy Capital Management and (e) the consummation
of the transactions contemplated hereby including, without
limitation, the payments contained in Section 3 hereof.
9. Transfer.
(a) Transfer of Restricted Securities.
(i) Restricted Securities (as herein defined) are
transferable pursuant to (A) public offerings registered under
the Securities Act, (B) Rule 144 of the Securities Act (or any
similar rule then in force) if such rule is available and (C)
subject to the conditions specified in Section 9(a)(ii)
hereof, any other legally available means of transfer.
(ii) In connection with the transfer of any
Restricted Securities (other than a transfer described in
clause (A) or (B) of Section 9(a)(i) hereof), the holder
thereof shall deliver written notice to EPII describing in
reasonable detail the transfer or proposed transfer, together
with information as to such holder's compliance with
applicable securities laws as reasonably may be requested by
EPII, and such transfer only shall be made in compliance with
the Securities Act and any applicable state securities laws.
EPII shall cooperate in connection with any such transfer,
including providing such information to any holder of
Restricted Securities or such holder's proposed transferee as
may be necessary to satisfy the requirements of Rule 144A of
the Securities Act in connection with any transfer to a
"Qualified Institutional Buyer" under such rule. Upon any
transfer, the transferee shall, to the extent of such
transfer, be entitled to exercise the rights hereunder of the
person making such transfer. To the extent the holder of the
Restricted Securities complies with the first sentence of this
Section 9(a)(ii), EPII shall promptly upon such contemplated
transfer deliver new certificates for such Restricted
Securities which do not bear the Securities Act legend set
forth in Section 9(b) hereof unless such legend is still
required. If EPII is not required to deliver new certificates
for such Restricted Securities not bearing such legend, the
holder thereof shall not transfer the same until the
prospective transferee has confirmed to EPII in writing its
agreement to be bound by the conditions contained in this
paragraph and Section 9(b) hereof.
(iii) "Restricted Securities" means (x) the New
Common Stock Warrant, (y) any securities issued pursuant to
the New Common Stock Warrant and (z) any securities issued
with respect to the securities referred to in clauses (x) or
(y) above by way of a stock dividend or stock split or in
connection with a combination of shares, modification, merger,
consolidation or other reorganization. As to any particular
Restricted Securities, such securities shall cease to be
Restricted Securities when they have (A) been effectively
registered under the Securities Act and disposed of in
accordance with the registration statement covering them, (B)
become eligible for sale pursuant to Rule 144 (or any similar
provision then in force) under the Securities Act or (C) been
otherwise transferred and new certificates for them not
bearing the Securities Act legend set forth in Section 9(b)
hereof have been delivered by EPII in accordance with Section
9(b) hereof. Whenever any particular securities cease to be
Restricted Securities, the holder thereof shall be entitled to
receive from EPII, without expense, new securities of like
tenor not bearing a Securities Act legend of the character set
forth in Section 9(b) hereof.
(b) Blair hereby represents that it is (a) an "accredited
investor" within the meaning of Rule 501(a) of Regulation D under the
Securities Act and (b) acquiring the Restricted Securities acquired
pursuant hereto for its own account with the present intention of
holding such securities for purposes of investment and that it has no
intention of selling such securities in a public distribution in
violation of the federal securities laws or any applicable state
securities laws; provided that nothing contained herein will prevent
Blair and any subsequent holders of Restricted Securities from
transferring such securities in compliance with the provisions of
Section 9(a) hereof. Each certificate for shares will be imprinted with
a legend in substantially the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
any state securities laws. The transfer of the securities
represented by this certificate is subject to the conditions
specified in that certain Amendment Agreement dated as of May
10, 1996 by and among William Blair Mezzanine Capital Fund,
L.P., Eagle Plastics, Inc. Pacific Plastics, Inc., Arrow
Pacific Plastics, Inc. and Eagle Pacific Industries, Inc.
(f/k/a Black Hawk Holdings, Inc.) ("EPII"), and EPII reserves
the right to refuse the transfer of such securities until such
conditions have been fulfilled with respect to such transfer.
A copy of such conditions will be furnished by EPII to the
holder hereof upon written request and without charge."
10. Miscellaneous.
(a) Further Assurances. The Company shall, from time to time
at the request of Blair, do all further acts and things as may in the
opinion of Blair be necessary or advisable to effectuate the
transaction and other matters contemplated hereby, including, without
limitation, the modification of or amendment to any other agreements,
certificates or instruments to which the Company is a party.
(b) Joint and Several. The Company's obligations hereunder
shall be joint and several.
(c) Successors. This Agreement and the agreements and
obligations contained herein shall, as applicable, be binding upon and
inure to the benefit of the Company and Blair and their respective
successors and permitted assigns.
(d) Costs and Expenses. The Company agrees to pay all costs
and expenses, including, without limitation, attorney's fees and
expenses, expended or incurred by Blair in connection with (i) the
preparation and structuring of this Agreement and the Ancillary
Agreements, (ii) the enforcement of this Agreement or any of the
Ancillary Agreements, (iii) the collection of any amounts due hereunder
and (iv) any actions for declaratory relief in any way related to this
Agreement or the agreements, certificates and instruments described
herein or contemplated hereby (including, without limitation, the
Ancillary Agreements), or the protection or preservation of any rights
of Blair hereunder.
(e) Notices. All notices and other communications given to or
made upon any party hereto in connection with this Agreement shall,
except as otherwise expressly herein provided, be in writing (including
telexed or telecopied communication) and mailed, telexed, telecopied or
delivered by hand or by reputable overnight courier service to the
respective parties, as follows:
If to Blair, to:
William Blair Mezzanine Capital Fund, L.P.
222 West Adams Street
Chicago, Illinois 60606
Attention: Terrance M. Shipp
Telecopy: (312) 236-8075
with copy to:
Altheimer & Gray
10 S. Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attention: Robert L. Schlossberg, Esq.
Telecopy: (312) 715-4800
If to the Company to:
c/o Eagle Pacific Industries, Inc.
2430 Lincoln Center
333 S. 7th Street
Minneapolis, Minnesota 55402
Attention: William H. Spell
Telecopy: (612) 371-9651
with copy to:
Fredrikson & Byron, P.A.
1100 International Centre
900 Second Avenue South
Minneapolis, Minnesota 55402-3397
Attention: Dobson West, Esq.
Telecopy: (612) 347-7077
or in accordance with any subsequent written direction from the
recipient party to the sending party. All such notices and other
communications shall, except as otherwise expressly herein provided, be
effective upon delivery if delivered by hand; when deposited with a
reputable courier service, delivery charges prepaid; when deposited in
the mail, postage prepaid; or in the case of telex or telecopy, when
received.
(f) Survival. All representations, warranties, covenants and
agreements contained herein or made in writing in connection herewith
shall survive indefinitely the execution and delivery of this
Agreement.
(g) Assignability. This Agreement shall not be assignable by
either party without the prior written consent of the other party.
(h) Entire Agreement. This Agreement and the instruments to be
delivered by the parties pursuant to the provisions hereof constitute
the entire agreement between the parties hereto with respect to the
subject matter hereof. Any amendments or alternative or supplementary
provisions to this Agreement must be made in writing and duly executed
by an authorized representative of each of the parties hereto.
(i) Counterparts. This Agreement may be executed in any number
of counterparts and by any party hereto on separate counterparts, each
of which, when so executed and delivered, shall be an original, but all
such counterparts shall together constitute one and the same
instrument.
(j) Captions. Section captions used in this Agreement are for
convenience only, and shall not affect the construction of this
Agreement.
(k) No Further Amendments. Except as specifically amended
hereby, the terms and provisions of the Debenture Acquisition
Agreement, the Debenture, the Registration Agreement and the Warrant
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers as of
the day and year first above written.
EAGLE PLASTICS, INC.
By:________________________________________________
Title:_____________________________________________
EAGLE PACIFIC INDUSTRIES, INC.
By:________________________________________________
Title:_____________________________________________
PACIFIC PLASTICS, INC.
By:________________________________________________
Title:_____________________________________________
ARROW PACIFIC PLASTICS, INC.
By:________________________________________________
Title:_____________________________________________
WILLIAM BLAIR MEZZANINE CAPITAL FUND, L.P.
By: William Blair Mezzanine Capital Partners, L.P.,
its general partner
By:_______________________________________
Title: a general partner
SCHEDULE 1
AMENDMENT AGREEMENT
1,383,500 shares of Preferred Stock of EPII convertible into 1,383,500 shares of
Common Stock of EPII. It is the intention of EPII to offer the holders of the
1,383,500 shares of Preferred Stock of EPII to convert such shares into
1,581,143 shares of Common Stock of EPII if done within a designated time.
Attached hereto are the following lists:
Warrants to purchase shares of EPII Common Stock
Nonqualified Stock Options Granted Outside the 1991 Stock Option Plan
to acquire shares of EPII Common Stock
Nonqualified Stock Options Granted Pursuant to the 1991 Stock Option
Plan to acquire shares
of
EPII Common Stock
Incentive Stock Options Granted Pursuant to the 1991 Stock Option Plan
to acquire shares of common stock of Eagle Plastics, Inc.
By agreement dated December 17, 1993 by and among EPII, Eagle Plastics, Inc.,
Larry D. Schnase, George Peter Konen and David Schnase, EPII may from time to
time be obligated to acquire shares of Eagle Plastics, Inc. for cash or by
issuing shares of Common Stock of EPII.
The section of EPII's Proxy Statement for Annual Meeting of Shareholders to be
held April 30, 1996 entitled "Security Ownership of Principal Shareholders and
Management" is incorporated herein by reference.
Eagle Pacific Industries, Inc.
List of Warrants
1. Warrant dated March 16, 1995 to purchase 100,000 shares of Common Stock
to William Blair Mezzanine Capital Fund LP.
2. Warrant dated December 17, 1993 to purchase 2,500 shares of Common
Stock to Mathews, Holmquist & Associates.
3. Warrant dated December 17,1993 to purchase 625 shares of Common Stock
to Askar Corporation.
4. Warrant dated December 17, 1993 to purchase 1,625 shares of Common
Stock to R.J. Steichen & Company.
5. Warrant dated December 17, 1993 to purchase 625 shares of Common Stock
to Jack P. Helms.
6. Warrant dated December 17, 1993 to purchase 313 shares of Common Stock
to Gerald R. Caruso.
7. Warrant dated December 17, 1993 to purchase 3,125 shares of Common
Stock to Terry A. Lynner.
8. Warrant dated December 17, 1993 to purchase 3,500 shares of Common
Stock to Charles Deckas.
9. Warrant dated December 17, 1993 to purchase 625 shares of Common Stock
to Steven M. Goldsmith.
Total number of shares of Common Stock granted pursuant to Warrants = 112,313
shares
<TABLE>
<CAPTION>
EAGLE PACIFIC INDUSTRIES, INC. 8/22/96
NONQUALIFIED STOCK OPTIONS GRANTED
OUTSIDE OF THE 1991 STOCK OPTION PLAN
Shares Expiration
Remaining of
Grant Total Shares to be Exercise Date and Shares
Name Date Granted Exercised Price Vesting Date Period Exercised
---- ------ ------- --------- ----- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PETER J. BRUSTKERN 2/01/93 5,000 5,000 $2.00 Full 2/01/98
CHARLES E. GRAY, JR. 7/06/95 24,000 24,000 $3.125 6,000 shares - 7/06/96 7/06/00
6,000 shares - 7/06/97 7/06/00
6,000 shares - 7/06/98 7/06/00
6,000 shares - 7/06/99 7/06/00
GEORGE PETER KONEN 12/17/93 50,000 50,000 $2.00 12,500 shares - 12/17/94 12/17/00
12,500 shares - 12/17/95** 12/17/00
12,500 shares - 12/17/96** 12/17/00
12,500 shares - 12/17/97** 12/17/00
12/17/93 45,000 45,000 $1.75 11,250 shares - 12/17/94 12/17/98
11,250 shares - 12/17/95** 12/17/98
11,250 shares - 12/17/96** 12/17/98
11,250 shares - 12/17/97** 12/17/98
1/01/95 40,000 40,000 $2.50 10,000 shares - 12/31/95 12/31/99
10,000 shares - 12/31/96
10,000 shares - 12/31/97
10,000 shares - 12/31/98
2/27/95 35,000 35,000 $3.00 Full 2/27/00
GEORGE R. LONG 2/01/93 15,000 15,000 $2.00 5,000 shares - 2/01/93 2/01/98
5,000 shares - 2/01/94* 2/01/98
5,000 shares - 2/01/95* 2/01/98
2/27/95 15,000 15,000 $3.00 Full 2/27/00
DAVID L. OWEN 3/04/89 10,000 0 $1.00 Fully vested on 3/04/92 3/03/94 Terminated
(RESIGNED 10/93) 3/3/94
2/01/93 15,000 5,000 $2.00 5,000 shares - 2/01/93 2/01/98
5,000 shares - 2/01/94* 2/01/98 Terminated 10/93
5,000 shares - 2/01/95* 2/01/98 Terminated 10/93
RICHARD W. PERKINS 5/06/92 30,000 30,000 $0.34375 7,500 shares - 5/06/92 3/31/97
7,500 shares - 6/15/93* 3/31/97
7,500 shares - 6/15/94* 3/31/97
7,500 shares - 6/15/95* 3/31/97
2/01/93 15,000 15,000 $2.00 5,000 shares - 2/01/93 2/1/98
5,000 shares - 2/01/94* 2/1/98
5,000 shares - 2/01/95* 2/1/98
2/27/95 15,000 15,000 $3.00 Full 2/27/00
BRUCE A. RICHARD 2/01/93 15,000 15,000 $2.00 5,000 shares - 2/01/93 2/01/98
5,000 shares - 2/01/94* 2/01/98
5,000 shares - 2/01/95* 2/01/98
12/17/93 20,000 20,000 $1.75 5,000 shares - 12/17/94 12/17/98
5,000 shares - 12/17/95 12/17/98
5,000 shares - 12/17/96 12/17/98
5,000 shares - 12/17/97 12/17/98
2/27/95 15,000 15,000 $3.00 Full 2/27/00
DAVID SCHNASE 12/17/93 45,000 45,000 $1.75 11,250 shares - 12/17/94 12/17/98
11,250 shares - 12/17/95** 12/17/98
11,250 shares - 12/17/96** 12/17/98
11,250 shares - 12/17/97** 12/17/98
1/01/95 20,000 20,000 $2.50 5,000 shares - 12/31/95 12/31/99
5,000 shares - 12/31/96 12/31/99
5,000 shares - 12/31/97 12/31/99
5,000 shares - 12/31/98 12/31/99
2/27/95 10,000 10,000 $3.00 Full 2/27/00
LARRY D. SCHNASE 12/17/93 150,000 150,000 $2.00 37,500 shares - 12/17/94 12/17/00
37,500 shraes - 12/17/95** 12/17/00
37,500 shares - 12/17/96** 12/17/00
37,500 shares - 12/17/97** 12/17/00
12/17/93 45,000 45,000 $1.75 11,250 shares - 12/17/94 12/17/98
11,250 shares - 12/17/95 12/17/98
11,250 shares - 12/17/96 12/17/98
11,250 shares - 12/17/97 12/17/98
2/27/95 35,000 35,000 $3.00 Full 2/27/00
LOYAL SORENSEN 7/10/95 100,000 100,000 $3.125 Full 7/10/00
HARRY W. SPELL 1/10/92 125,000 125,000 $0.34375 Full on 1/10/97* 1/10/99
(vesting accelerates when
Board determines)
5/6/92 35,000 0 $0.34375 12,500 shares - 5/06/92 3/31/97 Exercised
7,500 shares - 6/15/93*
7,500 3/31/97 35,000 on
shares - 3/31/97 6/18/96
6/15/94* 3/31/97
7,500 shares - 6/15/95*
2/1/93 15,000 15,000 $2.00 5,000 shares - 2/1/93 2/1/98
5,000 shares - 2/1/94* 2/1/98
5,000 shares - 2/1/95* 2/1/98
2/27/95 15,000 15,000 $3.00 Full 2/27/00
WILLIAM H. SPELL 1/10/92 125,000 125,000 $0.34375 Full as of 1/10/97* 1/10/99
(vesting accelerates when
Board determines)
5/06/92 35,000 0 $.34375 12,500 shares - 5/06/92 3/31/97 Exercised
7,500 shares - 6/15/93* 3/31/97 35,000 on
7,500 shares - 6/15/94* 3/31/97 6/18/96
7,500 shares - 6/15/95* 3/31/97
2/01/93 15,000 15,000 $2.00 5,000 shares - 2/01/93 2/01/98
5,000 shares - 2/01/94* 2/01/98
5,000 shares - 2/01/95* 2/01/98
2/27/95 50,000 50,000 $3.00 Full 2/27/00
EDWARD E. STRICKLAND 5/06/92 30,000 15,000 $0.34375 7,500 shares - 5/06/92 3/31/97
(RESIGNED BETWEEN MARCH 7,500 shares - 6/15/93* 3/31/97
AND MAY 12, 1994) 7,500 shares - 6/15/94* 3/31/97 Terminated 5/94
7,500 shares - 6/15/95* 3/31/97 Terminated 5/94
2/01/93 15,000 10,000 $2.00 5,000 shares - 2/01/93 2/01/98
5,000 shares - 2/01/94* 2/01/98
5,000 shares - 2/01/95* 2/01/98 Terminated 5/94
LYLE D. TAYLOR 2/01/93 15,000 10,000 $2.00 5,000 shares - 2/01/93 2/01/98
5,000 shares - 2/01/94* 2/01/98
5,000 shares - 2/01/95* 2/01/98 Terminated
JARRED THOMPSON 7/10/95 100,000 100,000 $3.125 FULL 7/10/00
GARY M. WENGLER 2/27/95 16,000 16,000 $3.00 4,000 shares - 2/27/95 2/27/00
4,000 shares - 2/27/96 2/27/00
4,000 shares - 2/27/97 2/27/00
4,000 shares - 2/27/98 2/27/00
TOTAL SHARES GRANTED: 1,360,000
TOTAL SHARES
REMAINING TO BE 70,000
EXERCISED:
1,245,000
TOTAL EXERCISED
SHARES:
</TABLE>
- -----------------------------
* must be a director as of the date the shares become exercisable
** must be an employee or director of Eagle as of the date the shares become
exercisable
cc: Nonqualified Stock Option Agreements File (29340.0.83)
Stock Transfer Matters File (29340.0.34)
Dobson West
<TABLE>
<CAPTION>
EAGLE PACIFIC INDUSTRIES, INC. 8/22/96
NONQUALIFIED STOCK OPTIONS GRANTED
PURSUANT TO 1991 STOCK OPTION PLAN
Shares Expiration
Remaining of Date and Shares
Grant Total Shares to be Exercise Exercised
Name Date Granted Exercised Price Vesting Date Period ---------------
---- ------ ------- --------- ----- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
PETER J. BRUSTKERN 4/25/91 5,000 5,000 $0.64 Fully vested on 10/25/91 4/24/01
S. ALBERT DIEZ HANSER 4/25/91 5,000 5,000 $0.64 Fully vested on 10/25/91 4/24/01
JAMES I. LAURSEN 4/10/92 5,000 0 $2.25 Full vested on 4/11/92 4/09/95 Expired 4/9/95
4/10/92 5,000 5,000 $0.64 Fully vested on 4/11/92 4/09/97
GEORGE R. LONG 4/25/91 5,000 5,000 $0.64 Fully vested on 10/25/91 4/24/01
4/08/93 5,000 5,000 $2.125 Fully vested on 10/8/93 4/07/03
5/12/94 5,000 5,000 $1.75 Fully vested on 11/12/94 5/11/04
DAVID L. OWEN 4/25/91 5,000 5,000 $0.64 Fully vested on 10/25/91 4/24/01
(RESIGNED 10/93)
4/08/93 5,000 5,000 $2.125 Fully vested on 10/8/93 4/07/03
RICHARD W. PERKINS 4/08/93 5,000 5,000 $2.125 Fully vested on 10/8/93 4/07/03
5/12/94 5,000 5,000 $1.75 Fully vested on 11/12/94 5/11/04
HERMAN J. RATELLE 4/25/91 5,000 5,000 $0.64 Fully vested on 10/25/91 4/24/01
BRUCE A. RICHARD 5/06/92 20,000 20,000 $2.50 5,000 shares - 5/06/92 5/06/97
5,000 shares - 5/06/93 5/06/97
5,000 shares - 5/06/94 5/06/97
5,000 shares - 5/06/95 5/06/97
4/08/93 5,000 5,000 $2.125 Fully vested on 10/8/93 04/07/03
5/12/94 5,000 5,000 $1.75 Fully vested on 11/12/94 05/11/04
HARRY W. SPELL 7/22/93 30,000 30,000 $2.0625 10,000 shares - 7/22/97 7/21/03
10,000 shares - 7/22/98* 7/21/03
10,000 shares - 7/22/99* 7/21/03
(vesting schedule accelerates
to vest 1/3 as of closing
date of acquisition, 1/3 the
next year and 1/3 the third
year)
WILLIAM H. SPELL 7/22/93 60,000 60,000 $2.0625 20,000 shares - 7/22/97 7/21/03
20,000 shares - 7/22/98* 7/21/03
20,000 shares - 7/22/99* 7/21/03
(vesting schedule accelerates
to vest 1/3 as of closing
date of acquisition, 1/3 the
next year and 1/3 the third
year)
EDWARD E. STRICKLAND 4/08/93 5,000 5,000 $2.125 Fully vested on 10/08/93 4/07/03
(RESIGNED BETWEEN MARCH
AND MAY 12, 1994)
LYLE D. TAYLOR 4/25/91 5,000 5,000 $0.64 Fully vested on 10/25/91 4/24/01
4/08/93 5,000 5,000 $2.125 Fully vested on 10/08/93 4/07/03
SHERREE L. TIPTON 7/22/93 3,000 3,000 $2.0625 1,000 shares - 7/22/93 7/21/00
1,000 shares - 7/22/94 7/21/00
1,000 shares - 7/22/95 7/21/00
5/12/94 3,000 3,000 $1.75 1,000 shares - 5/12/95 5/11/01
1,000 shares - 5/12/96 5/11/01
1,000 shares - 5/12/97 5/11/01
7/24/95 2,400 2,400 $3.0625 800 shares - 7/24/96 7/23/00
-----
800 shares - 7/24/97 7/23/00
800 shares - 7/24/98 7/23/00
TOTAL SHARES GRANTED: 203,400
=======
TOTAL SHARES
REMAINING TO BE 198,400
EXERCISED: =======
TOTAL EXERCISED
SHARES: O
</TABLE>
- -----------------------------
* must be a director as of the date the shares become exercisable
** must be an employee or director of Eagle as of the date the shares become
exercisable
<TABLE>
<CAPTION>
EAGLE PACIFIC INDUSTRIES, INC.
INCENTIVE STOCK OPTIONS GRANTED
PURSUANT TO 1991 STOCK OPTION PLAN
Shares Expiration
Remaining of Date and Shares
Grant Total Shares to be Exercise Exercised
Name Date Granted Exercised Price Vesting Date Period ---------------
---- ------ ------- --------- ----- ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
LYLE D. TAYLOR 3/14/90 6,250 0 $1.25 3,125 shares - 3/14/90 5/01/95 Expired
3,125 shares - 4/01/91
TOTAL SHARES GRANTED: 6,250
TOTAL SHARES
REMAINING TO BE 0
EXERCISED:
TOTAL EXERCISED
SHARES: O
</TABLE>
<TABLE>
<CAPTION>
TOTAL RESERVED SHARES
<S> <C>
Total shares reserved 1,500,000
LESS total NQSO shares granted (203,400)
LESS total ISO shares granted ( 6,250)
---------
Plus shares which were granted but not exercised and exercise period expired:
James I. Laursen - 5,000 shares (NQSO grant date 4/10/92) + 11,250
---------
Lyle D. Taylor - 6,250 shares (ISO grant date 3/14/90)
TOTAL REMAINING RESERVED SHARES TO BE GRANTED 1,301,600
=========
TOTAL EXERCISED SHARES Shares exercised by:
0
---------
TOTAL EXERCISED SHARES 0
---------
TOTAL OUTSTANDING SHARES FOR ISSUANCE UPON EXERCISE OF OPTIONS
Total NQSO and ISO Shares Granted 209,650
LESS Total Exercised Shares - 0
LESS Granted Shares that have expired or been terminated:
(11,250)
---------
TOTAL OUTSTANDING SHARES FOR ISSUANCE UPON EXERCISE 198,400
=========
</TABLE>
cc: Incentive Stock Option Plan File (29340.29)
Nonqualified Stock Option Agreements File (29340.0.83)
Stock Transfer Matters (29340.0.34)
Dobson West
EXHIBIT 10.18
The Warrant represented by this certificate has not been registered, under
either the Securities Act of 1933, as amended, or applicable state securities
laws. It may not be sold, offered for sale or transferred in the absence of an
effective registration under the Securities Act of 1933, as amended, and the
applicable state securities laws or an opinion of counsel satisfactory in form
and substance to counsel for the Company that such transaction will not result
in a prohibited transaction under the Securities Act of 1933, as amended, or the
applicable state securities laws.
WARRANT
To Purchase 215,000 Shares of Common Stock
of
Eagle Pacific Industries, Inc.
THIS CERTIFIES THAT, for good and valuable consideration, William Blair
Mezzanine Capital Fund, L.P. ( "Blair"), or its registered assigns, is entitled
to subscribe for and purchase from Eagle Pacific Industries, Inc., a Minnesota
corporation (the "Company"), at any time up to and including March 16, 1998, Two
Hundred Fifteen Thousand (215,000) fully paid and nonassessable shares of the
Common Stock of the Company at the price of $3.25 per share (the "Warrant
Exercise Price"), subject to the antidilution provisions of this Warrant. The
shares which may be acquired upon exercise of this Warrant are referred to
herein as the "Warrant Shares." As used herein, the term "Holder" means Blair,
any party who acquires all or a part of this Warrant as a registered transferee
of Blair, or any record holder or holders of the Warrant Shares issued upon
exercise, whether in whole or in part, of the Warrant; the term "Common Stock"
means and includes the Company's presently authorized common stock, no par
value, and shall also include any capital stock of any class of the Company
hereafter authorized which shall not be limited to a fixed sum or percentage in
respect of the rights of the holders thereof to participate in dividends or in
the distribution of assets upon the voluntary or involuntary liquidation,
dissolution, or winding up of the Company; and the term "Convertible Securities"
means any stock or other securities convertible into, or exchangeable for,
Common Stock.
This Warrant is subject to the following provisions, terms and
conditions:
1. Exercise; Transferability.
(a) The rights represented by this Warrant may be exercised by the
Holder hereof, in whole or in part (but not as to a fractional
share of Common Stock), by written notice of exercise (in the
form attached hereto) delivered to the Company at the
principal office of the Company prior to the expiration of
this Warrant and accompanied or preceded by the surrender of
this Warrant along with one of the following methods of
payment in the amount of the Warrant Exercise Price for such
shares: (i) if the Company or any Company subsidiary owes
Blair any funds pursuant to loans, promissory notes or
otherwise, Blair may provide appropriate documentation to
reflect the reduction of such indebtedness owed to Blair from
the Company or Company subsidiary by the amount of the Warrant
Exercise Price; (ii) in the event there is insufficient
indebtedness to allow all or part of the offset provided in
(i), then Blair may pay the Warrant Exercise Price of such
shares by assigning and transferring to the Company a number
of shares of Common Stock which when multiplied by the then
Fair Market Value (as defined in Section 9 below) of a share
of the Company's Common Stock (as in effect immediately prior
to the time of exercise) is at least equal to the Warrant
Exercise Price for such shares (the shares of Common Stock so
assigned and transferred may be a portion of the shares of
Common Stock acquired in such exercise of this Warrant); or
(iii) a check or other form of cash payment.
(b) This Warrant is transferable in whole or in part, subject to
applicable federal and state securities laws and regulations.
This Warrant may not be sold, transferred, assigned,
hypothecated or divided into two or more Warrants of smaller
denominations, nor may any Warrant Shares issued pursuant to
exercise of this Warrant be transferred, except as provided in
Section 7 hereof.
2. Exchange and Replacement. Subject to Sections l and 7 hereof,
this Warrant is exchangeable upon the surrender hereof by the
Holder to the Company at its office for new Warrants of like
tenor and date representing in the aggregate the right to
purchase the number of Warrant Shares purchasable hereunder,
each of such new Warrants to represent the right to purchase
such number of Warrant Shares (not to exceed the aggregate
total number purchasable hereunder) as shall be designated by
the Holder at the time of such surrender. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss,
theft, destruction, or mutilation of this Warrant, and, in
case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will
make and deliver a new Warrant of like tenor, in lieu of this
Warrant; provided, however, that if Blair shall be such
Holder, an agreement of indemnity by such Holder shall be
sufficient for all purposes of this Section 2. This Warrant
shall be promptly canceled by the Company upon the surrender
hereof in connection with any exchange or replacement. The
Company shall pay all expenses, taxes (other than stock
transfer taxes), and other charges payable in connection with
the preparation, execution, and delivery of Warrants, exercise
of Warrants and issuance of the Warrant Shares pursuant to
this Section 2.
3. Issuance of the Warrant Shares.
(a) The Company agrees that the shares of Common Stock purchased
hereby shall be and are deemed to be issued to the Holder as
of the close of business on the date on which this Warrant
shall have been surrendered and the payment made for such
Warrant Shares as aforesaid. Subject to the provisions of the
next section, certificates for the Warrant Shares so purchased
shall be delivered to the Holder within a reasonable time, not
exceeding fifteen (15) days after the rights represented by
this Warrant shall have been so exercised, and, unless this
Warrant has expired, a new Warrant representing the right to
purchase the number of Warrant Shares, if any, with respect to
which this Warrant shall not then have been exercised shall
also be delivered to the Holder within such time.
(b) Notwithstanding the foregoing, however, the Company shall not
be required to deliver any certificate for Warrant Shares upon
exercise of this Warrant except in accordance with exemptions
from the applicable securities registration requirements or
registrations under applicable securities laws. Nothing
herein, however, shall obligate the Company to effect
registrations under federal or state securities laws. If
registrations are not in effect and if exemptions are not
available when the Holder seeks to exercise the Warrant, the
Warrant exercise period will be extended, if need be, to
prevent the Warrant from expiring, until such time as either
registrations become effective or exemptions are available,
and the Warrant shall then remain exercisable for a period of
at least 30 calendar days from the date the Company delivers
to the Holder written notice of the availability of such
registrations or exemptions. The Holder agrees to execute such
documents and make such representations, warranties, and
agreements as may be reasonably required solely to comply with
the exemptions relied upon by the Company, or the
registrations made, for the issuance of the Warrant Shares.
4. Covenants of the Company. The Company covenants and agrees
that all Warrant Shares will, upon issuance, be duly
authorized and issued, fully paid, nonassessable, and free
from all taxes, liens, charges and preemptive or similar
rights with respect to the issue thereof. The Company further
covenants and agrees that during the period within which the
rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved for the
purpose of issue or transfer upon exercise of the subscription
rights evidenced by this Warrant a sufficient number of shares
of Common Stock to provide for the exercise of the rights
represented by this Warrant.
5. Antidilution Adjustments. The provisions of this Warrant are
subject to adjustment as provided in this Section 5.
(a) The Warrant Exercise Price shall be adjusted from time to time
such that in case the Company shall hereafter:
(i) pay any dividends on any class of stock of the Company
payable in Common Stock or securities convertible into Common Stock;
(ii) subdivide its then outstanding shares of Common Stock
into a greater number of shares; or
(iii) combine outstanding shares of Common Stock, by
reclassification or otherwise; then, in any such event, the Warrant
Exercise Price in effect immediately prior to such event shall (until
adjusted again pursuant hereto) be adjusted immediately after such
event to a price (calculated to the nearest full cent) determined by
dividing (a) the number of shares of Common Stock outstanding
immediately prior to such event (including the maximum number of shares
of Common Stock issuable in respect of any securities convertible into
Common Stock), multiplied by the then existing Warrant Exercise Price,
by (b) the total number of shares of Common Stock outstanding
immediately after such event (including the maximum number of shares of
Common Stock issuable in respect of any securities convertible into
Common Stock), and the resulting quotient shall be the adjusted Warrant
Exercise Price per share. An adjustment made pursuant to this
Subsection shall become effective immediately after the record date in
the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision,
combination or reclassification. If, as a result of an adjustment made
pursuant to this Subsection, the Holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive shares of two
or more classes of capital stock or shares of Common Stock and other
capital stock of the Company, the Board of Directors shall determine
the allocation of the adjusted Warrant Exercise Price between or among
shares of such classes of capital stock or shares of Common Stock and
other capital stock. All calculations under this Subsection shall be
made to the nearest cent or to the nearest 1/100 of a share, as the
case may be. In the event that at any time as a result of an adjustment
made pursuant to this Subsection, the holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive any shares of
the Company other than shares of Common Stock, thereafter the Warrant
Exercise Price of such other shares so receivable upon exercise of any
Warrant shall be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the provisions with
respect to Common Stock contained in this Section.
(b) If and whenever the Company shall (1) issue or sell any shares
of its Common Stock for a consideration per share less than
the Fair Market Value of the Company's Common Stock (as
adjusted for appropriate discounts due to the restricted
nature of the securities) in effect immediately prior to the
time of such issuance or sale, (2) issue or sell any warrants,
options or other rights to acquire shares of its Common Stock
at a purchase price less than the Fair Market Value of the
Company's Common Stock (as adjusted for appropriate discounts
due to the restricted nature of the securities) in effect
immediately prior to the time of such issuance or sale, or (3)
issue or sell any other securities that are convertible into
shares of its Common Stock for a purchase or exchange price
less than the Fair Market Value of the Company's Common Stock
(as adjusted for appropriate discounts due to the restricted
nature of the securities) in effect immediately prior to the
time of such issuance or sale (except for the issuance of
options or warrants approved by the Board of Directors of the
Company to employees, director and consultants), then, upon
such issuance or sale, the Warrant Exercise Price shall be
reduced to the price at which such shares of Common Stock are
being issued or sold by the Company or the price at which such
other securities are exercisable or convertible into shares of
the Company's Common Stock; provided, however, that no such
adjustment in the Warrant Exercise Price shall be made upon
the issuance of shares of Common Stock pursuant to (i)
options, warrants, convertible securities and other rights to
acquire shares listed on Schedule 1 to that certain Amendment
Agreement dated May 10, 1996 by and between Blair, the
Company, Eagle Plastics, Inc., Pacific Plastics, Inc. and
Arrow Pacific Plastics, Inc. or (ii) the conversion or
exercise into shares, and related issuance, of Common Stock
pursuant to any warrant, option or other right to acquire
shares of Common Stock that, upon the issuance of such
warrant, option or other right did not require an adjustment
to the Warrant Exercise Price pursuant hereto.
(c) Upon each adjustment of the Warrant Exercise Price pursuant to
Section 5(a) above, the Holder of each Warrant shall
thereafter (until another such adjustment) be entitled to
purchase at the adjusted Warrant Exercise Price the number of
shares, calculated to the nearest full share, obtained by
multiplying the number of shares specified in such Warrant (as
adjusted as a result of all adjustments in the Warrant
Exercise Price in effect prior to such adjustment) by the
Warrant Exercise Price in effect prior to such adjustment and
dividing the product so obtained by the adjusted Warrant
Exercise Price.
(d) In case of any consolidation or merger to which the Company is
a party other than a merger or consolidation in which the
Company is the continuing corporation, or in case of any sale
or conveyance to another corporation of the property of the
Company as an entirety or substantially as an entirety, or in
the case of any statutory exchange of securities with another
corporation (including any exchange effected in connection
with a merger of a third corporation into the Company), there
shall be no adjustment under Subsection (a) of this Section
above but the Holder of each Warrant then outstanding shall
have the right thereafter to convert such Warrant into the
kind and amount of shares of stock and other securities and
property which he would have owned or have been entitled to
receive immediately after such consolidation, merger,
statutory exchange, sale, or conveyance had such Warrant been
converted immediately prior to the effective date of such
consolidation, merger, statutory exchange, sale, or conveyance
and in any such case, if necessary, appropriate adjustment
shall be made in the application of the provisions set forth
in this Section with respect to the rights and interests
thereafter of any Holders of the Warrant, to the end that the
provisions set forth in this Section shall thereafter
correspondingly be made applicable, as nearly as may
reasonably be, in relation to any shares of stock and other
securities and property thereafter deliverable on the exercise
of the Warrant. The provisions of this Subsection shall
similarly apply to successive consolidations, mergers,
statutory exchanges, sales or conveyances.
(e) Upon any adjustment of the Warrant Exercise Price, then and in
each such case, the Company shall give written notice thereof,
by first-class mail, postage prepaid, addressed to the Holder
as shown on the books of the Company, which notice shall state
the Warrant Exercise Price resulting from such adjustment and
the increase or decrease, if any, in the number of shares of
Common Stock purchasable at such price upon the exercise of
this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is
based.
(f) In case at any time:
(i) The Company shall pay any dividend upon its Common Stock
payable in stock or make any distribution (other than cash dividends)
to the holders of its Common Stock; or
(ii) The Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class
or any other rights; or
(iii) There shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation
or merger of the Company with, or sale, conveyance, lease or other
transfer of all or substantially all of its assets to, another
corporation; or
(iv) There shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company; then in any one or more of
such cases, the Company shall give prior written notice, by first class
mail, postage prepaid, addressed to each registered Holder at the
address of such Holder as shown on the books of the Company, of the
date on which (a) the books of the Company shall close or a record
shall be taken for such stock dividend, distribution or subscription
rights or (b) such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up shall take place,
as the case may be. Such notice shall also specify the date as of which
the holders of the Common Stock of record shall participate in said
dividend, distribution or subscription rights or shall be entitled to
exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up, as the case may
be. Such written notice shall be given at least twenty (20) days prior
to the action in question and not less than twenty (20) days prior to
the record date or the date on which the Company's transfer books are
closed in respect thereto.
6. No Voting Rights. This Warrant shall not entitle the Holder to
any voting rights or other rights as a shareholder of the
Company.
7. Notice of Transfer of Warrant or Resale of the Warrant Shares.
(a) Subject to the sale, assignment, hypothecation, or other
transfer restrictions set forth in Section 1 hereof, the
Holder, by acceptance hereof, agrees to give written notice to
the Company before transferring this Warrant or transferring
any Warrant Shares of such Holder's intention to do so,
describing briefly the manner of any proposed transfer.
Promptly upon receiving such written notice, the Company shall
present copies thereof to the Company's counsel and to counsel
to the original purchaser of this Warrant. If in the
reasonable opinion of each such counsel the proposed transfer
may be effected without registration or qualification (under
any federal or state securities laws), the Company, as
promptly as practicable, shall notify the Holder of such
opinion, whereupon the Holder shall be entitled to transfer
this Warrant or to dispose of Warrant Shares received upon the
previous exercise of this Warrant, all in accordance with the
terms of the notice delivered by the Holder to the Company;
provided that an appropriate legend may be endorsed on this
Warrant or the certificates for such Warrant Shares respecting
restrictions upon transfer thereof necessary or advisable in
the opinion of counsel and satisfactory to the Company to
prevent further transfers which would be in violation of
Section 5 of the 1933 Act and applicable state securities
laws; and provided further that the prospective transferee or
purchaser shall execute such documents and make such
representations, warranties, and agreements as may be
reasonably required solely to comply with the exemptions
relied upon by the Company for the transfer or disposition of
the Warrant or Warrant Shares.
(b) If in the opinion of either of the counsel referred to in this
Section 7, the proposed transfer or disposition of this
Warrant or such Warrant Shares described in the written notice
given pursuant to this Section 7 may not be effected without
registration or qualification of this Warrant or such Warrant
Shares the Company shall promptly give written notice thereof
to the Holder, and the Holder will limit its activities in
respect to such as, in the opinion of both such counsel, are
permitted by law.
8. Fractional Shares. Fractional shares shall not be issued upon
the exercise of this Warrant, but in any case where the holder
would, except for the provisions of this Section, be entitled
under the terms hereof to receive a fractional share, the
Company shall, upon the exercise of this Warrant for the
largest number of whole shares then called for, pay a sum in
cash equal to the sum of (a) the excess, if any, of the Fair
Market Value (as defined in Section 9 below) of such
fractional share over the proportional part of the Warrant
Exercise Price represented by such fractional share, plus (b)
the proportional part of the Warrant Exercise Price
represented by such fractional share.
9. For purposes of this Agreement, "Fair Market Value" of a share
of the Company's Common Stock as of a particular date (the
"Determination Date") shall mean:
(a) If the Company's Common Stock is traded on an exchange or is
quoted on the Nasdaq National Market, then the average closing
or last sale prices, respectively, reported for the thirty
(30) business days immediately preceding the Determination
Date, and
(b) If the Common Stock is not traded on an exchange or on the
Nasdaq National Market but is traded on the Nasdaq SmallCap
Market or other over-the-counter market, then the average
(arithmetic mean) closing bid and asked prices reported for
the thirty (30) business days immediately preceding the
Determination Date.
IN WITNESS WHEREOF, Eagle Pacific Industries, Inc. has caused this
Warrant to be signed by its duly authorized officer and this
Warrant to be dated May 10, 1996.
"Company"
EAGLE PACIFIC INDUSTRIES, INC.
------------------------------
William H. Spell, President
To: Eagle Pacific Industries, Inc.
NOTICE OF EXERCISE OF WARRANT -- To Be Executed by the Registered Holder in
Order to Exercise the Warrant
The undersigned hereby irrevocably elects to exercise the attached Warrant to
purchase for cash, _________________ of the shares issuable upon the exercise of
such Warrant, and requests that certificates for such shares (together with a
new Warrant to purchase the number of shares, if any, with respect to which this
Warrant is not exercised) shall be issued in the name of
______________________________
(Print Name)
Please insert social security
or other identifying number
of registered holder of
certificate (______________) Address:
______________________________
______________________________
Date: _________, 19__ ______________________________
Signature*
*The signature on the Notice of Exercise of Warrant must correspond to the name
as written upon the face of the Warrant in every particular without alteration
or enlargement or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
ASSIGNMENT FORM
To be signed only upon authorized transfer of Warrants.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto _____________________________ the right to
purchase the securities of Eagle Pacific Industries, Inc. to
which the within Warrant relates and appoints _____________,
attorney, to transfer said right on the books of Eagle Pacific
Industries, Inc. with full power of substitution in the
premises.
Dated:________________ ______________________________
(Signature)
Address:
------------------------------
------------------------------
EXHIBIT 10.19
CO-SALE AGREEMENT
DATE: May 10, 1996
PARTIES: Harry W. Spell ("H. Spell")
William H. Spell ("W. Spell")
Spell Family Foundation ("Foundation")
Bruce A. Richard ("Richard")
Richard W. Perkins ("Perkins")
William Blair Mezzanine Capital Fund, L.P. ("Blair")
RECITALS:
A. As of the date hereof the parties hereto are the owners of the
shares of capital stock of Eagle Pacific Industries, Inc.
("EPII") and the options, warrants and other rights to acquire
shares of common stock of EPII as set forth on Exhibit A
attached hereto.
B. The parties hereto desire to provide for certain co-sale
rights in the event of certain significant sales by other
parties hereto.
AGREEMENT:
1. For the purposes of this Agreement the following terms shall
have the meanings indicated below:
(a) "Management Group" shall refer to H. Spell, W. Spell, Foundation,
Richard and Perkins or any two or more of them acting together.
(b) "Shares" shall mean the shares of capital stock of EPII listed on
Exhibit A hereto and any shares of common stock of EPII acquired by a
party hereto pursuant to the exercise of any option, warrant or other
right to acquire shares of common stock of EPII listed on Exhibit A
hereto.
(c) "Selling Transaction" shall mean the sale, assignment, transfer or
other disposition of more than 500,000 Shares in a single transaction
or series of related transactions that is not otherwise exempted from
the provisions of this Agreement by Section 4 below.
2. During the term hereof, the Management Group shall not enter
into a Selling Transaction without permitting Blair to
participate as a seller in such transaction(s) on a pro rata
basis according to the common share holdings of EPII listed on
Exhibit A assuming all options, warrants and other rights to
acquire shares of common stock of EPII have been exercised.
3. The Management Group shall give prompt written notice to Blair
in the event that it has the present intention to enter into a
Selling Transaction. Such notice shall disclose the terms and
conditions of such Selling Transaction. Blair shall advise the
Management Group in writing within thirty days of receipt of
such notice whether or not it desires to be a seller in such
Selling Transaction on the terms and conditions set forth in
the notice from the Management Group and pursuant to Section 2
above. If Blair does not provide such written response to the
notice from the Management Group within such time period,
Blair shall be deemed to have waived its rights hereunder with
respect to such Selling Transaction and the Management Group
may proceed with such Selling Transaction on substantially the
terms set forth in the notice to Blair.
4. The following sales, assignments, transfers or other
dispositions by the Management Group shall not be considered
Selling Transactions and shall be exempt from the provisions
of this Agreement:
(a) sales of Shares by the Management Group in a bona fide underwritten
public offering pursuant to a registration statement filed by EPII
pursuant to the Securities Act of 1933, as now or hereafter amended
(the "Act");
(b) sales of Shares by the Management Group in a market transaction in
a bona fide public market, pursuant to a registration statement,
pursuant to Rule 144 promulgated under the Act or pursuant to some
other exemption from registration under the Act; and
(c) any transfer of Shares by gift or testamentary disposition to any
person.
5. This Agreement shall terminate on May 31, 1999 or upon such
earlier date as Blair shall dispose of any Shares such that
after all such dispositions Blair owns less than 25% of the
Shares shown on Exhibit A as being owned by Blair.
6. All notices and other communications required or permitted
hereunder shall be in writing and shall be delivered in
person, by facsimile transmission, by a recognized courier
service or by the United States Postal Service to party at
its/his address or facsimile number listed on Exhibit A
hereto, or at such other address or facsimile number as such
party may specify by written notice to the other parties
hereto. All such notices shall be deemed to be effective when
received at such address or facsimile number.
7. This Agreement and the rights of the parties hereunder shall
be construed and governed by the laws of the State of
Minnesota.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
__________________________________________
Harry W. Spell
__________________________________________
William H. Spell
SPELL FAMILY FOUNDATION
By:_______________________________________
Its:_________________________________
__________________________________________
Bruce A. Richard
__________________________________________
Richard W. Perkins
WILLIAM BLAIR MEZZANINE CAPITAL FUND, L.P.
By:_______________________________________
Its:_________________________________
EXHIBIT A
EAGLE PACIFIC INDUSTRIES, INC.
CO-SALE AGREEMENT
Harry W. Spell 26,384 shares of Common Stock
2430 Metropolitan Centre 50,000 shares of Preferred Stock
Minneapolis, MN 55402 Options for 220,000 shares of Common Stock
(612) 371-9651
William H. Spell 33,864 shares of Common Stock
2430 Metropolitan Centre 25,000 shares of Preferred Stock
Minneapolis, MN 55402 Options for 285,000 shares of Common Stock
(612) 371-9651
Spell Family Foundation 22,500 shares of Common Stock
2430 Metropolitan Centre
Minneapolis, MN 55402
(612) 371-9651
Bruce A. Richard 25,000 shares of Preferred Stock
2458 Farrington Circle Options for 70,000 shares of Common Stock
Roseville, MN 55113
(612) 483-1359
Richard W. Perkins 72,727 shares of Common Stock
730 East Lake Street 22,500 shares of Preferred Stock
Wayzata, MN 55391 Options for 70,000 shares of Common Stock
(612) 473-4701
William Blair Mezzanine 435,000 shares of Common Stock
Capital Fund, L.P. Options for 315,000 shares of Common Stock
222 West Adams Street
Chicago, IL 60606
Attention: Terrence M. Shipp
(312) 236-8075
EXHIBIT 10.20
IRREVOCABLE PROXY
The undersigned, William Blair Mezzanine Capital Fund, L.P., hereby irrevocably
appoints Eagle Pacific Industries, Inc., acting through its Board of Directors,
with full power of substitution, its proxy to represent and vote all shares of
common stock of Eagle Pacific Industries, Inc. owned by it or registered in its
name from time to time or owned by its Affiliates (as defined by the rules and
regulations promulgated under the Securities Act of 1933, as amended or the
Securities Exchange Act of 1934, as amended) or registered in such Affiliate(s)
name from time to time as a result of a transfer of such shares from the
undersigned to such Affiliate(s) at any meeting of the shareholders of Eagle
Pacific Industries, Inc. This proxy shall terminate immediately and without any
other action on the part of the undersigned with respect to any shares of common
stock of Eagle Pacific Industries, Inc. transferred by the undersigned to a
party that is not an Affiliate of the undersigned at such time as such transfer
is made. This proxy shall terminate immediately and without any other action on
the part of the undersigned upon the occurrence of any Event of Default
described in Section 6.1 of that certain debenture acquisition agreement dated
as of March 16, 1995 by and among the undersigned, Eagle Plastics, Inc. and
Eagle Pacific Industries, Inc., as amended. This proxy is being granted to Eagle
Pacific Industries, Inc. in connection with that certain amendment agreement by
and among the undersigned, Eagle Plastic, Inc., Eagle Pacific Industries, Inc.,
Pacific Plastics, Inc. and Arrow Pacific Plastics, Inc. of even date herewith.
WILLIAM BLAIR MEZZANINE CAPITAL FUND, L.P.
By: William Blair Mezzanine Capital
Management, L.P., its general partner
By:________________________________________
A General Partner
Date: May 10, 1996
EXHIBIT 10.21
AMENDMENT AGREEMENT
DATE: May ___, 1996
PARTIES: Loyal and Zelda Sorensen ("Sorensen")
7215 N.E. Parlane
Vancouver, Washington 98662
Jarred and Sharron Thompson ("Thompson")
7220 N.E. Parlane
Vancouver, Washington 98662
Eagle Pacific Industries, Inc. ("EPII")
(formerly Black Hawk Holdings, Inc.)
2430 Metropolitan Center
333 South Seventh Street
Minneapolis, Minnesota 55402
RECITALS:
A. The parties hereto are all of the parties to that certain
registration rights agreement dated as of July 10, 1995 (the
"Registration Rights Agreement").
B. The parties hereto are also all parties to that certain
agreement by and among the parties hereto, Pacific Plastic,
Inc. and Pacific Acquisition Corp. dated as of July 10, 1995
(the "Stock Agreement").
C. The Registration Rights agreement provides for certain
registration rights with respect to shares of stock of EPII
obtained by Sorensen and Thompson pursuant to that stock
purchase agreement by and among the parties hereto and Pacific
Plastics, Inc. dated July 6, 1995 (the "Purchase Agreement")
but does not cover the shares of stock of EPII obtained by
Sorensen and Thompson pursuant to the Stock Agreement.
D. The parties hereto desire to amend both the Registration
Rights Agreement and the Stock Agreement.
AGREEMENT:
The parties hereto, each intending to be legally bound, agree as
follows:
1. The Registration Rights Agreement is amended by amending the
definition of "Shareholder's Shares" in Article 1 thereof to
read as follows:
"Shareholder's Shares" means the shares of Common Stock issued to the
Shareholder pursuant to the Purchase Agreement and issued to the
Shareholder pursuant to that certain agreement dated as of July 10,
1995 by and among Black Hawk, the Shareholders and certain other
parties pursuant to which the Shareholders acquired in the aggregate
84,210 shares of Common Stock, or any other shares of Common Stock of
Black Hawk issued in respect of such shares in connection with any
stock split, stock dividend, reclassification, recapitalization, or
similar event.
2. The Stock Agreement is amended by deleting therefrom the
provisions of Section 3 thereof.
IN WITNESS WHEREOF, the undersigned have executed this agreement as of
the day and year first above written.
EAGLE PACIFIC INDUSTRIES, INC.
(formerly Black Hawk Holdings, Inc.)
By:___________________________________
William H. Spell, President
______________________________________
Loyal Sorensen
______________________________________
Zelda Sorensen
______________________________________
Jarred Thompson
______________________________________
Sharron Thompson
EXHIBIT 10.22
EMPLOYMENT AGREEMENT
THIS AGREEMENT effective as of January 1, 1997, between Eagle Pacific
Industries, Inc., a Minnesota corporation (the "Company"), and William H. Spell,
a resident of Edina, Minnesota ("Executive").
A. Executive has been and desires to remain employed as Chief
Executive Officer of the Company.
B. The Company desires to continue to retain the benefit of
Executive's experience and loyalty, and to continue to employ
Executive as Chief Executive Officer of the Company.
C. This Agreement replaces and supersedes Executive's restated
employment agreement effective as of January 1, 1995 with the
Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
1. Definitions
The terms used in this Agreement shall be defined as follows:
(a) "Agreement" shall mean this Agreement as amended from time
to time.
(b) "Base Salary" shall mean the annual base salary payable to
Executive pursuant to Section 4(a) hereof.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Cause" shall mean termination of the Executive's
employment with the Company by the Board because of (1) gross
misconduct; (2) material breach of this Agreement by
Executive; (3) conviction or entry of a plea of guilty or nolo
contendere to any felony or misdemeanor or the entry of any
final civil judgment in connection with any allegation of
fraud, misrepresentation, misappropriation or any other
intentional tort or statute violation; (4) insubordination; or
(5) sexual harassment of fellow employees.
(e) "Committee" shall mean the Compensation Committee of the
Board, if one exists and, if not, shall mean the Board.
(f) "Company" shall mean Eagle Pacific Industries, Inc., a
Minnesota corporation, its successors or assigns.
(g) "Executive" shall mean William H. Spell, a resident of
Edina, Minnesota.
(h) "Executive Benefit Plans" shall mean any plans within the
meaning of Sections 4(c) and (d) of this Agreement.
(i) "Period" shall mean the three year period commencing on
the date hereof. If the parties agree to any extension of the
Period, the term "Period" shall include all such extensions
thereof.
(j) "Permanently Disabled" shall mean permanently prevented
from performing his obligations hereunder as a result of his
physical or mental health, as evaluated by sufficient
documentation including doctors' statements.
(k) "Stock Options" shall mean any options held by Executive
granting him the right to acquire shares of common stock of
the Company.
(l) "Substantial Breach" shall mean (1) a substantial
reduction in the nature or status of Executive's
responsibilities hereunder; provided, that it shall not be
deemed to be a Substantial Breach if Executive's duties are
revised so that he remains an officer but is removed or not
reelected as Chief Executive Officer; (2) a reduction by the
Company in the Base Salary of Executive except to the extent
permitted under Section 4(a) hereof; (3) the failure by the
Company to allow Executive to participate to the full extent
in all plans, programs or benefits in accordance with Sections
4(b) to (e), inclusive, thereof; and (4) the failure by the
Company to pay, distribute or grant any amounts of cash, stock
or other compensation to Executive to which he is entitled. A
Substantial Breach shall be deemed to occur only if such
Substantial Breach has not been corrected by the Company
within two weeks of receipt of notice from Executive of the
occurrence of such Substantial Breach, which notice shall
specifically set forth the nature of the Substantial Breach.
2. Employment and Duties.
(a) General. The Company hereby employs Executive, and
Executive agrees upon the terms and conditions herein set
forth to serve as an officer of the Company and in such
capacity, shall perform duties substantially the same as
normally performed by persons in like positions in similar
companies except to the extent set forth in Section 2(b)
below. Executive may be transferred, promoted or changed to
another position, and any such transfer, promotion or change
shall not affect the enforcement of this Agreement.
(b) Other Employment. The parties hereto acknowledge that
Executive is engaged in other business pursuits in which he
renders services to other organizations for which he receives
compensation. While Executive is expected to devote an
appropriate amount of time to his duties for the Company,
Executive may pursue other business interests during the
Period so long as he does not violate Section 10 below.
3. Term of Employment. Subject to earlier termination of
employment pursuant to Sections 5, 6, 7 or 8 of this
Agreement, the Company shall retain Executive during the
Period; and Executive shall serve in the employ of the Company
for the Period.
4. Compensation and Other Benefits. Subject to the provisions of
this Agreement, the Company shall pay and provide the
following compensation and other benefits to Executive during
the term of his employment as compensation for services
rendered hereunder:
(a) Base Salary. The Company shall pay to Executive a Base
Salary at the rate of $108,000 per annum, payable in
accordance with the Company's standard payroll policies. The
Company shall be entitled to deduct or withhold all taxes and
charges which the Company may be required to deduct or
withhold therefrom. The Base Salary will be reviewed not less
than annually by the Committee.
(b) Incentive Compensation. At all times during the Period,
Executive shall be entitled to participate in all incentive
compensation plans and programs of the Company, existing from
time to time including the EBITDA bonus plan established by
the Committee and described in Exhibit A attached hereto. For
calendar year 1997, Executive's maximum bonus under the EBITDA
bonus plan shall be fifty one thousand dollars ($51,000) and
shall be based entirely on the Company's EBITDA.
(c) Stock Options. Executive shall be entitled to participate
in all stock option plans and programs of the Company existing
from time to time other than plans that exclude executive
employees generally.
(d) Other Executive Benefit Plans. Executive shall be eligible
to participate in all pension and welfare plans and programs
of the Company for executive employees, existing from time to
time, including, without limitation, the following:
(i) All qualified benefit plans and programs (e.g.,
defined contribution, supplemental retirement and Section
401(k) plans, long-term disability and life insurance plans
and programs);
(ii) All hospitalization and medical plans and
programs; and
(iii) All retirement plans and programs.
(e) Annuity. The Company shall continue to pay the premiums on
the annuities that are currently in effect for the benefit of
Executive.
(f) Office Space. The Company shall continue to provide
Executive with office space and support staff consistent with
the past.
(g) Car Allowance. The Company shall pay Executive a car
allowance of six hundred dollars ($600.00) per month.
5. Termination of Employment for Cause.
(a) Compensation and Benefits. If, prior to the expiration of
the Period, (i) Executive's employment is terminated by the
Company for Cause, or (ii) Executive resigns from his
employment hereunder other than under circumstances covered by
Section 6 below, Executive shall not be eligible to receive
any compensation or benefits or to participate in any plans or
programs under Section 4 hereof with respect to the Period
after the date of such termination except for the right to
receive benefits under any plan or program, to the extent
vested, in accordance with the terms of such plan or program
and except for benefits provided in accordance with customary
practices of the Company at Executive's expense (e.g.,
hospitalization and medical insurance).
(b) Date of Termination. The date of termination of
Executive's employment by the Company under this Section 5
shall be two (2) weeks after receipt by Executive of written
notice of termination for Cause or after receipt by the
Company of written notice of Executive's resignation.
6. Termination of Employment Without Cause or Resignation After
Substantial Breach.
(a) Compensation and Benefits. If, prior to the expiration of
the Period, Executive 's employment is terminated by the
Company without Cause, or if, prior to the expiration of the
Period Executive resigns from his employment hereunder
following a Substantial Breach, the Company shall pay
Executive an amount equal to Executive's then current Base
Salary in twenty-four (24) equal monthly installments
beginning one month after Executive's termination of
employment.
(b) Date of Termination. The date of termination of
Executive's employment by the Company under this Section 6
shall be the date specified in the written notice of
termination to Executive, or if no such date is specified
therein, the date on which such notice is given to Executive.
The date of resignation by Executive under this Section 6
shall be two weeks after receipt by the Company of written
notice of resignation, provided that the Substantial Breach
specified in such notice shall not have been corrected by the
Company during such two week period.
7. Termination of Employment by Disability.
(a) Compensation and Benefits. If Executive becomes
Permanently Disabled prior to the expiration of the Period,
the Company shall be entitled to terminate Executive's
employment at the later of (x) six months from the date
Executive becomes Permanently Disabled but not beyond the end
of the Period or (y) the date the Company could terminate
Executive in accordance with the Company's normal policies in
such matters as applied to all other salaried employees. In
the event of such termination of Executive's employment,
Executive shall be entitled to receive from the Company the
following:
(i) Executive shall be entitled to continued
participation in hospital and medical plans and programs of
the Company in accordance with Company policy as it pertains
to disabled salaried employees; that is for the period of said
disability or until normal retirement age subject to the rules
and practice of the plan(s).
(ii) Executive shall be entitled to received benefits
under any other Company plan or program (to the extent
Executive is vested) in accordance with the terms of such plan
or program.
(b) Date of Termination. The date of termination of
Executive's employment under Section 7 shall be the date
determined pursuant to Section 7(a) above.
8. Termination of Employment by Death.
(a) Compensation and Benefits. If Executive dies prior to the
expiration of the Period, the Executive's estate or his
beneficiary as appropriate shall be entitled to receive
benefits under the Company's plan(s) or program(s) in
accordance with the terms of such plan(s) or program(s).
9. Termination of Employment by Nonrenewal of This Agreement. If
Executive is employed by the Company at the end of the Period
(and the Period is not extended by mutual agreement of
Executive and the Company), the Company shall pay Executive an
amount equal to Executive's then current Base Salary in
twenty-four (24) equal monthly installments beginning one
month after Executive's termination of employment.
10. Noncompetition. During the terms of Executive's employment
with the Company and for twenty-four (24) months thereafter,
Executive shall refrain from directly or indirectly, on his
own behalf or on behalf of any other person or entity, compete
with the Company or any of its subsidiaries, anywhere in the
continental United States, including but not limited to
directly or indirectly rendering any services, advice or
counsel in any capacity whatsoever, for any entity or person
that engages in or is in the process of or anticipates
engaging in any business which in any manner competes with the
Company or any of its subsidiaries. At the option of the
Company, the Company may extend the term of this covenant not
to compete for two (2) additional one (1) year periods
provided that the Company exercises its options six (6) months
prior to the first day such option period would take effect
and pays Executive an amount equal to one-twelfth (1/12) of
the Base Salary in effect on the date of Executive's
termination of employment each month during the extended term
of this covenant not to compete. In the event that the Company
does not exercise its final option to extend this covenant not
to compete into the third year after termination, it shall no
longer have the right to exercise its final option for year
four (4). In the event that Executive violates the terms of
this Article 10, the term of this covenant not to compete
shall be extended for a period of time equal to the period of
time that Executive was violating the terms of this Section
10.
11. Nondisclosure of Confidential Information.
a. Definition. For purposes of this Agreement "Confidential
Information" means any information or compilation of
information, not generally known, which is proprietary to the
Company and relates to the Company's existing or reasonably
foreseeable business, including, but not limited to, trade
secrets and information relating to the Company's services,
marketing plans or proposals and customer information. All
information which the Company identifies as being
"confidential" or "trade secret" shall be presumed to be
Confidential Information. Confidential Information shall also
include any confidential information of a parent, subsidiary
or sister corporation of the Company and any information
disclosed by a third party under contract with the Company
which contract requires such disclosed information be kept
confidential. Confidential Information shall not include
information that is in or enters the public domain other than
through a breach of confidentiality owed to the Company.
b. Nondisclosure. During the Period and at all times
thereafter, Executive shall hold in strictest of confidence
and will never disclose, furnish, transfer, communicate, make
assessable to any person or use in any way Confidential
Information for Executive's own or another's benefit or permit
the same to be used in competition with the Company, nor will
Executive accept any employment which would, by the nature of
the position, inherently involve the use or disclosure by
Executive of Confidential Information.
12. Injunctive Relief. The parties acknowledge that the Company
and/or its subsidiaries will suffer irreparable harm if
Executive breaches Sections 10 or 11 of this Agreement.
Accordingly, the Company shall be entitled, in addition to any
other rights and remedies that it may have, at law or at
equity, to an injunction, without the parting of a bond or
other security, enjoining or restraining Executive from any
violation of Sections 10 or 11 of this Agreement. Executive
hereby consents to the Company's right to the issuance of such
injunction.
13. Binding Agreement. This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto, any Successor to
or assigns of the Company, and Executive's heirs and the
personal representative of Executive's estate.
14. Severability. If the final determination of a court of
competent jurisdiction declares, after the expiration of the
time within which judicial review (if permitted) of such
determination may be perfected, that any term of provision
hereof is invalid or unenforceable, (a) the remaining terms
and provisions hereof shall be unimpaired and (b) the invalid
or unenforceable term or provision shall be deemed replaced by
a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or
unenforceable term or provision.
15. Amendment; Waiver. This Agreement may not be modified, amended
or waived in any manner except by an instrument in writing
signed by both parties hereto. The waiver by either party of
compliance with any provision of this Agreement by the other
party shall not operate or be construed as a waiver of any
other provision of this Agreement, or of any subsequent breach
by such party of a provision of this Agreement.
16. Governing Law. All matters affecting this Agreement, including
the validity thereof, are to be governed by, interpreted and
construed in accordance with the laws of the State of
Minnesota.
17. Notices. Any notice hereunder by either party to the other
shall be given in writing by personal delivery or certified
mail, return receipt requested. If addressed to Executive, the
notice shall be delivered or mailed to Executive at the
address specified under Executive's signature hereto or such
other address which Executive has advised the Company to send
notice to, or if addressed to the Company, the notice shall be
delivered or mailed to the Company at its executive offices
and to the attention of each member of the Board of Directors
of the Company at their respective business addresses. A
notice shall be deemed given, if by personal delivery, on the
date of such delivery or, if by certified mail, on the date
shown on the applicable return receipt.
IN WITNESS WHEREOF, the Company has caused the Agreement to be signed
by its officer pursuant to the authority of its Board, and
Executive has executed this Agreement, as of the day and year
first written above.
EAGLE PACIFIC INDUSTRIES, INC.
By___________________________________
G. Peter Konen, President
_____________________________________
William H. Spell
EXHIBIT A
EAGLE PACIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
EBITDA BONUS PLAN
The following is a summary of the Eagle Pacific Industries, Inc. and
Subsidiaries EBITDA Bonus Plan.
"EBITDA" shall mean the earnings before interest, taxes, depreciation and
amortization for the particular company determined by the auditors for Eagle
Pacific Industries, Inc. ("EPII") in accordance with GAAP for each fiscal year
of EPII.
At or before the beginning of each fiscal year, the Board of Directors of EPII
shall establish three levels of EBITDA for EPII and for each of its
subsidiaries. If the lowest level is achieved, each employee participating in
the EBITDA Bonus Plan will receive one-third of his/her maximum bonus. If the
second highest level of EBITDA is achieved, each employee participating in the
EBITDA Bonus Plan will receive two-thirds of his/her maximum bonus. If the
highest level of EBITDA is achieved, each employee participating in the EBITDA
Bonus Plan will receive his/her maximum bonus. At the same time the Board of
Directors of EPII shall establish the eligible employees, the maximum amount of
their bonuses and the company or companies on which the bonus will be based for
that year.
An employee must be employed by the Company or one of its subsidiaries
on the last day of the fiscal year in order to be entitled to receive any EBITDA
bonus for that year.
EXHIBIT 10.23
EMPLOYMENT AGREEMENT
THIS AGREEMENT effective as of January 1, 1997, between Eagle Pacific
Industries, Inc., a Minnesota corporation (the "Company"), and G. Peter Konen, a
resident of Hastings, Nebraska ("Executive").
A. Executive has been and desires to remain employed as President
of the Company.
B. The Company desires to continue to retain the benefit of
Executive's experience and loyalty, and to continue to employ
Executive as President of the Company.
C. This Agreement replaces and supersedes Executive's restated
employment agreement effective as of January 1, 1995 with
Eagle Plastics, Inc., a subsidiary of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein
contained, the parties hereto agree as follows:
1. Definitions
The terms used in this Agreement shall be defined as follows:
(a) "Agreement" shall mean this Agreement as amended from time
to time.
(b) "Base Salary" shall mean the annual base salary payable to
Executive pursuant to Section 4(a) hereof.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Cause" shall mean termination of the Executive's
employment with the Company by the Board because of (1) gross
misconduct; (2) material breach of this Agreement by
Executive; (3) conviction or entry of a plea of guilty or nolo
contendere to any felony or misdemeanor or the entry of any
final civil judgment in connection with any allegation of
fraud, misrepresentation, misappropriation or any other
intentional tort or statute violation; (4) insubordination; or
(5) sexual harassment of fellow employees.
(e) "Committee" shall mean the Compensation Committee of the
Board, if one exists and, if not, shall mean the Board.
(f) "Company" shall mean Eagle Pacific Industries, Inc., a
Minnesota corporation, its successors or assigns.
(g) "Executive" shall mean G. Peter Konen, a resident of
Hastings, Nebraska.
(h) "Executive Benefit Plans" shall mean any plans within the
meaning of Sections 4(c) and (d) of this Agreement.
(i) "Period" shall mean the three year period commencing on
the date hereof. If the parties agree to any extension of the
Period, the term "Period" shall include all such extensions
thereof.
(j) "Permanently Disabled" shall mean permanently prevented
from performing his obligations hereunder as a result of his
physical or mental health, as evaluated by sufficient
documentation including doctors' statements.
(k) "Stock Options" shall mean any options held by Executive
granting him the right to acquire shares of common stock of
the Company.
(l) "Substantial Breach" shall mean (1) a substantial
reduction in the nature or status of Executive's
responsibilities hereunder; provided, that it shall not be
deemed to be a Substantial Breach if Executive's duties are
revised so that he remains an officer but is removed or not
reelected as President; (2) a reduction by the Company in the
Base Salary of Executive except to the extent permitted under
Section 4(a) hereof; (3) the failure by the Company to allow
Executive to participate to the full extent in all plans,
programs or benefits in accordance with Sections 4(b) to (e),
inclusive, thereof; and (4) the failure by the Company to pay,
distribute or grant any amounts of cash, stock or other
compensation to Executive to which he is entitled. A
Substantial Breach shall be deemed to occur only if such
Substantial Breach has not been corrected by the Company
within two weeks of receipt of notice from Executive of the
occurrence of such Substantial Breach, which notice shall
specifically set forth the nature of the Substantial Breach.
2. Employment and Duties.
(a) General. The Company hereby employs Executive, and
Executive agrees upon the terms and conditions herein set
forth to serve as an officer of the Company and in such
capacity, shall perform duties substantially the same as
normally performed by persons in like positions in similar
companies. Executive may be transferred, promoted or changed
to another position, and any such transfer, promotion or
change shall not affect the enforcement of this Agreement.
(b) No Other Employment. Throughout the time that Executive is
employed by the Company, Executive shall, except as may from
time to time be otherwise agreed in writing by the Company and
unless prevented by ill health, devote his full-time working
hours to his duties hereunder and Executive shall not,
directly or indirectly, render services to any other person or
organization for which he receives compensation (excluding
volunteer services or outside Board activities with modest
time commitments) without the consent of the Board or
otherwise engage in activities which would interfere
significantly with the performance of his duties hereunder.
3. Term of Employment. Subject to earlier termination of
employment pursuant to Sections 5, 6, 7 or 8 of this
Agreement, the Company shall retain Executive during the
Period; and Executive shall serve in the employ of the Company
for the Period.
4. Compensation and Other Benefits. Subject to the provisions of
this Agreement, the Company shall pay and provide the
following compensation and other benefits to Executive during
the term of his employment as compensation for services
rendered hereunder:
(a) Base Salary. The Company shall pay to Executive a Base
Salary at the rate of $175,000 per annum, payable in
accordance with the Company's standard payroll policies. The
Company shall be entitled to deduct or withhold all taxes and
charges which the Company may be required to deduct or
withhold therefrom. The Base Salary will be reviewed not less
than annually by the Committee.
(b) Incentive Compensation. At all times during the Period,
Executive shall be entitled to participate in all incentive
compensation plans and programs of the Company, existing from
time to time including the EBITDA bonus plan established by
the Committee and described in Exhibit A attached hereto. For
calendar year 1997, Executive's maximum bonus under the EBITDA
bonus plan shall be eighty one thousand dollars ($81,000) and
shall be based entirely on the Company's EBITDA.
(c) Stock Options. Executive shall be entitled to participate
in all stock option plans and programs of the Company existing
from time to time other than plans that exclude executive
employees generally.
(d) Other Executive Benefit Plans. Executive shall be eligible
to participate in all pension and welfare plans and programs
of the Company for executive employees, existing from time to
time, including, without limitation, the following:
(i) All qualified benefit plans and programs (e.g.,
defined contribution, supplemental retirement and Section
401(k) plans, long-term disability and life insurance plans
and programs);
(ii) All hospitalization and medical plans and
programs; and
(iii) All retirement plans and programs.
(e) Life Insurance. The Company agrees to continue paying
premium payments on Northwestern Mutual Life Policy #10760100
and Northwestern Mutual Life Policy #10216427, both on the
life of Executive. Such payment of premiums shall continue
until termination of this or any further employment agreement
with Executive. Upon Executives termination of employment with
the Company, the ownership of the above policies shall be
transferred to Executive with no reimbursement from Executive.
The foregoing policies shall provide that in the event of
Executive's death during the term of this Agreement, the
proceeds from such policies shall be divided equally between
the Company and Executive's spouse (or if she predeceases
Executive, then Executive's estate).
(f) Car Allowance. The Company shall pay Executive a car
allowance of six hundred dollars ($600.00) per month.
5. Termination of Employment for Cause.
(a) Compensation and Benefits. If, prior to the expiration of
the Period, (i) Executive's employment is terminated by the
Company for Cause, or (ii) Executive resigns from his
employment hereunder other than under circumstances covered by
Section 6 below, Executive shall not be eligible to receive
any compensation or benefits or to participate in any plans or
programs under Section 4 hereof with respect to the Period
after the date of such termination except for the right to
receive benefits under any plan or program, to the extent
vested, in accordance with the terms of such plan or program
and except for benefits provided in accordance with customary
practices of the Company at Executive's expense (e.g.,
hospitalization and medical insurance).
(b) Date of Termination. The date of termination of
Executive's employment by the Company under this Section 5
shall be two (2) weeks after receipt by Executive of written
notice of termination for Cause or after receipt by the
Company of written notice of Executive's resignation.
6. Termination of Employment Without Cause or Resignation After
Substantial Breach.
(a) Compensation and Benefits. If, prior to the expiration of
the Period, Executive 's employment is terminated by the
Company without Cause, or if, prior to the expiration of the
Period Executive resigns from his employment hereunder
following a Substantial Breach, the Company shall pay
Executive an amount equal to Executive's then current Base
Salary in twenty-four (24) equal monthly installments
beginning one month after Executive's termination of
employment.
(b) Date of Termination. The date of termination of
Executive's employment by the Company under this Section 6
shall be the date specified in the written notice of
termination to Executive, or if no such date is specified
therein, the date on which such notice is given to Executive.
The date of resignation by Executive under this Section 6
shall be two weeks after receipt by the Company of written
notice of resignation, provided that the Substantial Breach
specified in such notice shall not have been corrected by the
Company during such two week period.
7. Termination of Employment by Disability.
(a) Compensation and Benefits. If Executive becomes
Permanently Disabled prior to the expiration of the Period,
the Company shall be entitled to terminate Executive's
employment at the later of (x) six months from the date
Executive becomes Permanently Disabled but not beyond the end
of the Period or (y) the date the Company could terminate
Executive in accordance with the Company's normal policies in
such matters as applied to all other salaried employees. In
the event of such termination of Executive's employment,
Executive shall be entitled to receive from the Company the
following:
(i) Executive shall be entitled to continued
participation in hospital and medical plans and programs of
the Company in accordance with Company policy as it pertains
to disabled salaried employees; that is for the period of said
disability or until normal retirement age subject to the rules
and practice of the plan(s).
(ii) Executive shall be entitled to received benefits
under any other Company plan or program (to the extent
Executive is vested) in accordance with the terms of such plan
or program.
(b) Date of Termination. The date of termination of
Executive's employment under Section 7 shall be the date
determined pursuant to Section 7(a) above.
8. Termination of Employment by Death.
(a) Compensation and Benefits. If Executive dies prior to the
expiration of the Period, the Executive's estate or his
beneficiary as appropriate shall be entitled to receive
benefits under the Company's plan(s) or program(s) in
accordance with the terms of such plan(s) or program(s).
9. Termination of Employment by Nonrenewal of This Agreement. If
Executive is employed by the Company at the end of the Period
(and the Period is not extended by mutual agreement of
Executive and the Company), the Company shall pay Executive an
amount equal to Executive's then current Base Salary in
twenty-four (24) equal monthly installments beginning one
month after Executive's termination of employment.
10. Noncompetition. During the terms of Executive's employment
with the Company and for twenty-four (24) months thereafter,
Executive shall refrain from directly or indirectly, on his
own behalf or on behalf of any other person or entity, compete
with the Company or any of its subsidiaries, anywhere in the
continental United States, including but not limited to
directly or indirectly rendering any services, advice or
counsel in any capacity whatsoever, for any entity or person
that engages in or is in the process of or anticipates
engaging in any business which in any manner competes with the
Company or any of its subsidiaries. At the option of the
Company, the Company may extend the term of this covenant not
to compete for two (2) additional one (1) year periods
provided that the Company exercises its options six (6) months
prior to the first day such option period would take effect
and pays Executive an amount equal to one-twelfth (1/12) of
the Base Salary in effect on the date of Executive's
termination of employment each month during the extended term
of this covenant not to compete. In the event that the Company
does not exercise its final option to extend this covenant not
to compete into the third year after termination, it shall no
longer have the right to exercise its final option for year
four (4). In the event that Executive violates the terms of
this Article 10, the term of this covenant not to compete
shall be extended for a period of time equal to the period of
time that Executive was violating the terms of this Section
10.
11. Nondisclosure of Confidential Information.
a. Definition. For purposes of this Agreement "Confidential
Information" means any information or compilation of
information, not generally known, which is proprietary to the
Company and relates to the Company's existing or reasonably
foreseeable business, including, but not limited to, trade
secrets and information relating to the Company's services,
marketing plans or proposals and customer information. All
information which the Company identifies as being
"confidential" or "trade secret" shall be presumed to be
Confidential Information. Confidential Information shall also
include any confidential information of a parent, subsidiary
or sister corporation of the Company and any information
disclosed by a third party under contract with the Company
which contract requires such disclosed information be kept
confidential. Confidential Information shall not include
information that is in or enters the public domain other than
through a breach of confidentiality owed to the Company.
b. Nondisclosure. During the Period and at all times
thereafter, Executive shall hold in strictest of confidence
and will never disclose, furnish, transfer, communicate, make
assessable to any person or use in any way Confidential
Information for Executive's own or another's benefit or permit
the same to be used in competition with the Company, nor will
Executive accept any employment which would, by the nature of
the position, inherently involve the use or disclosure by
Executive of Confidential Information.
12. Injunctive Relief. The parties acknowledge that the Company
and/or its subsidiaries will suffer irreparable harm if
Executive breaches Sections 10 or 11 of this Agreement.
Accordingly, the Company shall be entitled, in addition to any
other rights and remedies that it may have, at law or at
equity, to an injunction, without the parting of a bond or
other security, enjoining or restraining Executive from any
violation of Sections 10 or 11 of this Agreement. Executive
hereby consents to the Company's right to the issuance of such
injunction.
13. Binding Agreement. This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto, any Successor to
or assigns of the Company, and Executive's heirs and the
personal representative of Executive's estate.
14. Severability. If the final determination of a court of
competent jurisdiction declares, after the expiration of the
time within which judicial review (if permitted) of such
determination may be perfected, that any term of provision
hereof is invalid or unenforceable, (a) the remaining terms
and provisions hereof shall be unimpaired and (b) the invalid
or unenforceable term or provision shall be deemed replaced by
a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or
unenforceable term or provision.
15. Amendment; Waiver. This Agreement may not be modified, amended
or waived in any manner except by an instrument in writing
signed by both parties hereto. The waiver by either party of
compliance with any provision of this Agreement by the other
party shall not operate or be construed as a waiver of any
other provision of this Agreement, or of any subsequent breach
by such party of a provision of this Agreement.
16. Governing Law. All matters affecting this Agreement, including
the validity thereof, are to be governed by, interpreted and
construed in accordance with the laws of the State of
Minnesota.
17. Notices. Any notice hereunder by either party to the other
shall be given in writing by personal delivery or certified
mail, return receipt requested. If addressed to Executive, the
notice shall be delivered or mailed to Executive at the
address specified under Executive's signature hereto or such
other address which Executive has advised the Company to send
notice to, or if addressed to the Company, the notice shall be
delivered or mailed to the Company at its executive offices
and to the attention of each member of the Board of Directors
of the Company at their respective business addresses. A
notice shall be deemed given, if by personal delivery, on the
date of such delivery or, if by certified mail, on the date
shown on the applicable return receipt.
IN WITNESS WHEREOF, the Company has caused the Agreement to be signed
by its officer pursuant to the authority of its Board, and Executive has
executed this Agreement, as of the day and year first written above.
EAGLE PACIFIC INDUSTRIES, INC.
By___________________________________
William H. Spell, CEO
_____________________________________
G. Peter Konen
EXHIBIT A
EAGLE PACIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
EBITDA BONUS PLAN
The following is a summary of the Eagle Pacific Industries, Inc. and
Subsidiaries EBITDA Bonus Plan.
"EBITDA" shall mean the earnings before interest, taxes, depreciation and
amortization for the particular company determined by the auditors for Eagle
Pacific Industries, Inc. ("EPII") in accordance with GAAP for each fiscal year
of EPII.
At or before the beginning of each fiscal year, the Board of Directors of EPII
shall establish three levels of EBITDA for EPII and for each of its
subsidiaries. If the lowest level is achieved, each employee participating in
the EBITDA Bonus Plan will receive one-third of his/her maximum bonus. If the
second highest level of EBITDA is achieved, each employee participating in the
EBITDA Bonus Plan will receive two-thirds of his/her maximum bonus. If the
highest level of EBITDA is achieved, each employee participating in the EBITDA
Bonus Plan will receive his/her maximum bonus. At the same time the Board of
Directors of EPII shall establish the eligible employees, the maximum amount of
their bonuses and the company or companies on which the bonus will be based for
that year.
An employee must be employed by the Company or one of its subsidiaries on the
last day of the fiscal year in order to be entitled to receive any EBITDA bonus
for that year.
EXHIBIT 10.24
CONSULTING AGREEMENT AND RELEASE
EFFECTIVE DATE: January 1, 1997
PARTIES:
Eagle Pacific Industries, Inc. ("EPII")
2430 Metropolitan Centre
333 South 7th Street
Minneapolis, Minnesota 55402
Eagle Plastics, Inc. ("Eagle")
146 North Maple
Hastings, Nebraska 68901
Larry D. Schnase ("Schnase")
426 South Shore Drive
Hastings, Nebraska 68901
RECITALS:
A. Prior to the Effective Date hereof, Schnase was employed by EPII and
its subsidiaries as an officer. The terms and conditions of Schnase's
employment was set forth in that certain Restated Employment Agreement
by and between Schnase and Eagle effective as of January 1, 1995 (the
"Employment Agreement"). Schnase and Eagle are also all of the parties
to that certain Deferred Compensation Agreement effective as of
December 17, 1993 (the "Deferred Compensation Agreement").
B. Schnase is a member of the Boards of Directors of EPII and its
subsidiaries and is not resigning those positions.
C. Schnase desires to terminate his employment with EPII and EPII
desires to keep Schnase available to provide consulting services to
EPII and its subsidiaries as specified herein.
AGREEMENT:
The parties, each intending to be legally bound, agree as follows:
1. Resignation as Employee. Schnase hereby resigns as an officer
and employee of EPII and each of its subsidiaries, including
without limitation Eagle. The parties hereto agree that the
Employment Agreement is terminated and that all obligations of
the parties under the Employment Agreement are void.
Notwithstanding such termination of employment, the stock
option agreements by and between EPII and Schnase and between
Eagle and Schnase (the "Stock Option Agreements") and the
Deferred Compensation Agreement are hereby amended to provide
that so long as Schnase remains a consultant to EPII under the
terms of this Agreement or any successor to this Agreement, he
shall be deemed for the purposes of these Stock Option
Agreements and the Deferred Compensation Agreement to have
been an employee of EPII and Eagle. The Deferred Compensation
Agreement is further amended to provide that the amount of
seventy-five thousand dollars ($75,000) referred to in Article
1 thereof shall be increased at the rate of 7% per annum from
the date hereof to the date that the first payment is made
pursuant to Article 1 of the Deferred Compensation Agreement.
2. Release. For the purposes of this Section 2, EPII shall mean
EPII, its subsidiaries, successors and assigns, its affiliated
and predecessor companies, their successors and assigns, their
affiliated and predecessor companies and the present or former
directors, officers, employees, shareholders and agents of any
of them, whether in their individual or official capacities,
and the current and former trustees or administrators of any
pension or other benefit plan applicable to the employees or
former employees of EPII or its subsidiaries in their official
and individual capacities.
a. Notification of Rights Pursuant to the Federal Age
Discrimination in Employment Act, (29 U.S.C. (beta) 621 et
seq.) Schnase is hereby notified of his right to rescind the
release of claims with regard to his rights under the federal
Age Discrimination in Employment Act, 29 U.S.C. (beta) 621, et
seq. ("ADEA"), within seven (7) days after the signing of this
Consulting Agreement and Release. In order to be effective,
the rescission must be in writing and delivered to William H.
Spell at EPII at the address set forth above, by hand or mail.
If delivered by mail, the rescission must be postmarked within
the required period, properly addressed to William H. Spell,
as set forth above, and sent by certified mail, return receipt
requested. It is further understood that if Schnase rescinds
the release of claims, in accordance with this Section 2.a.
that this entire Consulting and Release Agreement is null and
void. Schnase agrees to repay any payments or benefits he
received under this Agreement prior to his rescission.
b. Acknowledgement of Reading and Understanding Consultation
With Counsel: Period to Consider Agreement. Schnase, by his
signature to this Agreement, acknowledges and agrees that he
has carefully read and understood all provisions of this
Agreement, and that he has entered into this Agreement
knowingly and voluntarily. Schnase further acknowledges that
EPII has advised him to consult with counsel prior to signing
this Agreement, and Schnase acknowledges that he has consulted
with or had the opportunity to consult with legal counsel.
c. Time to Consider. Schnase shall have at least twenty-one
(21) days to consider whether the terms of this Consulting
Agreement and Release are acceptable to him after he has
received a copy of this Consulting Agreement and Release, and
before he must sign this Consulting Agreement and Release.
d. Denial of Liability. EPII specifically denies any liability
to Schnase for any and all claims which could be or have been
asserted by Schnase against EPII and neither this Consulting
Agreement and Release, nor anything contained herein, shall be
construed as an admission by EPII of any liability of unlawful
conduct whatsoever.
e. Release. Schnase, for himself and his heirs, legal
representatives, estates and successors in interest, hereby
releases and forever discharges EPII of and from any and all
actions or causes of action, suits, debts, claims, complaints,
contracts, controversies, agreements, promises, damages,
claims for attorneys fees, judgments, costs, disbursements,
severance benefits, deferred compensation and demands
whatsoever, in law or entity, he ever had, now has, or shall
have as of the date of this Consulting Agreement and Release,
including, but not limited to, any alleged violation of any
federal, state or local law, regulation or ordinance
prohibiting discrimination or other unlawful activity on the
basis of race, color, creed, marital status, sex, age,
religion, national origin, handicap, sexual harassment,
disability or any other basis, or any alleged obligation
created by statute (including but not limited to any claims
under Title VII of the Civil Rights Act of 1964, as amended,
and the Age Discrimination in Employment Act) or by common law
contract or tort theory, that he ever had, now has or shall
have as of the date of this Consulting Agreement and Release;
provided, however, this release shall not include any and all
obligations which EPII has to Schnase under the Deferred
Compensation Agreement and the Stock Option Agreements.
f. Claims by Others. Schnase agrees to release and discharge
EPII not only from any and all claims which he could make on
his own behalf, but also those which may or could be brought
by any other person or organization in her behalf, and he
specifically waives any right to become, and promises not to
become, a member of any class in any proceeding or case in
which a claim or claims against EPII arise, in whole or in
part, from any event which occurred as of the date of this
Consulting Agreement and Release.
g. No Charges, Complaints or Actions. Schnase affirms that he
has not caused or permitted to be filed any charge, complaint
or action against EPII. In the event that there is outstanding
any such charge, complaint, or action, Schnase agrees to seek
its immediate withdrawal and dismissal with prejudice. In the
event that for any reason said charge, complaint, or action is
not withdrawn, Schnase agrees not to voluntarily testify,
provide documents, or otherwise participate, or to permit
others to voluntarily participate on his behalf, in any
investigation or litigation arising therefrom or associated
therewith and to execute such other papers or documents as
EPII's counsel determines may be necessary to have said
charge, complaint or action dismissed with prejudice.
h. Confidentiality. Schnase promises and agrees not to
disclose, either directly or indirectly, in any manner
whatsoever, any information of any kind regarding either (a)
the substance or the existence of any belief he or any other
person may have that EPII engaged in any unlawful or tortious
conduct towards him, or breached any contract, or (b) the
terms of this Consulting Agreement and Release, to any person
or organization, including, but not limited to,
representatives of local, state or federal agencies, members
of the press and media, present and former officers, employees
and agents of EPII, and other members of the public. In the
event of a breach by Schnase of the terms of this Section
2.h., EPII may commence an action at law for damages to pursue
its available legal or equitable remedies. In the event that
EPII takes steps to seek relief from an alleged breach of this
Section 2.h. all of the remaining provisions of this
Consulting Agreement and Release shall remain in full force
and effect. Notwithstanding anything in this Consulting
Agreement and Release to the contrary, nothing in this
Consulting Agreement and Release shall prohibit Schnase from
(i) discussing the consideration being provided him pursuant
thereto with his attorneys or tax advisors, (ii) discussing
the underlying dispute or the terms of this Consulting
Agreement and Release with his attorneys, his immediate family
members or his medical doctors, (iii) advising a governmental
taxing authority of the said consideration or of the existence
of this Consulting Agreement and Release, in response to a
question or questions posed by such taxing authority, (iv)
testifying pursuant to a court order or a subpoena issued by a
governmental agency, Court of law or their duly authorized
agent, which appears valid on its face, (v) revealing the
terms of this Consulting Agreement and Release as required by
and in accordance with any law, regulation or ordinance, or
Court order or proceeding, (vi) revealing the terms of this
Consulting Agreement and Release in order to enforce its
terms, or (vii) stating "the matter has been resolved and the
terms of the resolution are confidential" in response to an
inquiry.
3. Term. This Agreement shall commence as of the effective date
set forth above and shall remain in force until December 31,
1998, unless sooner terminated pursuant to the provisions of
Section 11 below.
4. Schnase's Duties. Schnase agrees to perform the following
duties at his own expense:
a. Consulting Services. Schnase shall consult with and advise
EPII and its subsidiaries as to the operations of the business of EPII
and its subsidiaries from time to time as requested by EPII.
b. Company Policies. Schnase shall abide by all policies of
EPII as such policies may be amended from time to time by EPII.
c. Use of EPII's Name. Schnase shall not use the name of EPII
or any of its subsidiaries or any other similar name or any trademark,
tradename or service mark of EPII or its subsidiaries which may in any
way result in confusion or lead a third party to believe that EPII and
Schnase are not separate and distinct entities.
d. Noncompetition. During the term of this Agreement and for
five (5) years thereafter, Schnase shall refrain from directly or
indirectly developing, selling, promoting or brokering any items which
are in competition with the products of EPII and its subsidiaries.
Without limiting the generality of the foregoing sentence, this
provision shall be deemed to be breached if Schnase acts as an
employee, agent or consultant of, independent contractor, distributor
or broker for, or shareholder, director, officer or owner of any
capital interest in, any person or entity developing, manufacturing or
selling such competitive items.
e. Laws and Regulations. Schnase shall conform to all
applicable laws and regulations and to the highest business ethics in
performing his obligations in accordance with the terms of this
Agreement.
5. Schnase's Compensation.
a. Monthly Compensation. During the term of this Agreement,
EPII shall pay Schnase at the rate of ten thousand dollars
($10,000) per month during 1997 and at the rate of eight
thousand three hundred thirty three dollars ($8,333) per month
during 1998. Such payments shall be made monthly in arrears
during the term of this Agreement.
b. EBITDA Bonus. During the term of this Agreement, Consultant
is eligible to earn a maximum EBITDA bonus of thirty thousand
dollars ($30,000) for 1997 and a maximum EBITDA bonus of
thirty thousand dollars ($30,000) for 1998. For 1997, Schnase
will earn a ten thousand dollar ($10,000) EBITDA bonus if the
earnings before interest, taxes, depreciation and amortization
for EPII ("EBITDA") are at least $6,500,000; an additional ten
thousand dollars ($10,000) if the EBITDA for 1997 is at least
$6,825,000 and the full thirty thousand dollar ($30,000)
EBITDA bonus for 1997 if the EBITDA for 1997 is at least
$7,150,000. The EBITDA levels for Schnase to earn his EBITDA
bonus for 1998 will be based on the same levels as the
officers of EPII who are eligible to receive EBITDA bonuses.
c. Expense Reimbursement. EPII will reimburse Schnase for any
reasonable and customary business expenses incurred by Schnase
in connection with the performance of his duties hereunder at
the request of EPII.
d. Directors' Fees and Options. During the term of this
Agreement, Schnase waives his rights to any fees or stock
options to which he might be entitled as a result of his being
a nonemployee director of EPII.
e. Life Insurance. Eagle will continue to pay the premiums on
Northwestern Mutual Life Policy #10154964 and Northwestern
Mutual Life Policy #10089934 on the life of Schnase (the
"Policies") through April 2, 1997. On April 2, 1997, Eagle
will assign and transfer its entire interest in the Policies
to Schnase solely as additional consideration for the services
rendered by Schnase hereunder.
f. Office Facilities. During the term of this Agreement, EPII
will provide Schnase with an office.
g. Health and Dental Insurance. During the term of this
Agreement, EPII will provide health and dental insurance
coverage to Schnase comparable to the health and dental
insurance coverage provided to the executive officers of EPII.
6. Nondisclosure of Confidential Information.
a. Definition. For purposes of this Agreement "Confidential
Information" means any information or compilation of information, not
generally known, which is proprietary to EPII and relates to EPII's
existing or reasonably foreseeable business which is not readily
disclosed by inspection of EPII's products, including, but not limited
to, trade secrets, inventions and information contained in or relating
to EPII's product designs, tolerances, manufacturing methods,
processes, techniques, treatment or chemical composition of material,
plant layout, tooling, marketing plans or proposals, and customer
information. All information which EPII identifies as being
"confidential" or "trade secret" shall be presumed to be Confidential
Information. Confidential Information shall also include any
confidential information of a parent, subsidiary or sister corporation
of EPII and any information disclosed by a third party under contract
with EPII which contract requires such disclosed information be kept
confidential. Confidential Information shall not include information
that is in or enters the public domain other than through a breach of
confidentiality owed to EPII.
b. Nondisclosure. During the term of this Agreement and at all
times thereafter, Schnase shall hold in strictest of confidence and
will never disclose, furnish, transfer, communicate, make assessable to
any person or use in any way Confidential Information for Schnase's own
or another's benefit or permit the same to be used in competition with
EPII, nor will Schnase accept any employment which would, by the nature
of the position, inherently involve the use or disclosure by Schnase of
Confidential Information. The term "any person" as used above includes
any individual who does not have written authorization from EPII to
have access to Confidential Information, including EPII employees and
other EPII consultants. Schnase will refrain from such acts and
omissions which would reduce the value of the Confidential Information
to EPII.
7. Documents and Tangible Property. All tangible evidence of
Confidential Information, including, without limitation,
working models, records, drawings, manuals, books, blank
forms, documents, letters, memoranda, notes, notebooks,
reports, data, tables, calculations or copies thereof shall be
and remain the exclusive property of EPII, and Schnase agrees
to return all such tangible evidence of Confidential
Information to EPII upon termination of this Agreement or at
such earlier time as EPII may request.
8. Independent Contractor. Schnase acknowledges that he is an
independent contractor and is not and shall not be deemed to
be an employee, joint venturer, partner, franchisee or legal
representative of EPII for any purpose whatsoever.
Accordingly, Schnase shall be exclusively responsible for the
manner in which he performs, and for the profitability or lack
thereof of, his activities under this Agreement. Schnase does
not have, and shall not represent himself as having, any right
or authority to obligate or bind EPII in any manner
whatsoever.
9. Schnase's Name. Schnase consents to the use of Schnase's name
in appropriate EPII materials such as, but not limited to,
annual reports, proxy statements and filings with government
agencies.
10. No Conflicts. Schnase represents and warrants to EPII that
neither the entering into this Agreement nor the performance
of any of the Schnase's obligations hereunder will conflict
with or constitute a breach under any obligation of Schnase
under any agreement or contract to which Schnase is bound.
Without limiting the foregoing, Schnase agrees that at no time
will Schnase utilize any trade secrets of any third party.
11. Termination. This Agreement may be terminated prior to the end
of its term pursuant to any of the following provisions:
a. Mutual Agreement. By mutual agreement.
b. Default. By either party, effective immediately upon
delivery of written notice to the other party, if the other party
breaches any of its obligations under this Agreement; provided that if
such breach is curable, such notice shall not be effective until the
breaching party fails to correct such breach or default within a period
of thirty (30) days after delivery of such written notice. If such
breach is not curable, the Agreement shall terminate immediately upon
delivery of such notice of breach.
c. Adverse Activity. By EPII effective immediately upon
delivery of written notice (i) upon gross misconduct or insubordination
on the part of Schnase, (ii) if Schnase is convicted of or enters a
plea of guilty or nolo contendere to any felony or misdemeanor or the
entry of final judgment in connection with any allegation of fraud,
misrepresentation, misappropriation or any other intentional tort or
statute violation, (iii) upon the sexual harassment of any employees of
EPII or any of its subsidiaries, (iv) if Schnase takes any action which
impairs the goodwill associated with EPII's trademark, trade name or
service mark, or (v) if Schnase makes any unauthorized use or
disclosure of any Confidential Information.
12. Obligations Upon Termination. Following termination of this
Agreement for any reason, the following provisions shall
apply:
a. Payment of Compensation. EPII's sole obligation to Schnase
upon expiration or proper termination of this Agreement shall be to pay
compensation determined in accordance with the provisions of Section 5
hereof for services rendered prior to the expiration or termination of
this Agreement and pursuant to the Deferred Compensation Agreement.
Schnase hereby acknowledges that he has no right to and waives any such
implied rights to any reimbursement for lost profits or income or any
other loss, cost or expense resulting from expiration or termination of
this Agreement in accordance with its terms.
b. Continuing Obligations. The provisions of Sections 1, 2,
4.c. and d., 6, 7 and 9 herein shall survive the termination of this
Agreement and shall continue in full force and effect.
13. General Provisions.
a. Severability and Interpretation. In the event that a
provision of this Agreement is held invalid, the remaining provisions
shall nonetheless be enforced in accordance with their terms. Further,
in the event that any provision is held to be overbroad as written,
such provision shall be deemed amended to narrow its application to the
extent necessary to make the provision enforceable according to
applicable law and shall be enforced as amended.
b. Notices. Any notice required or permitted to be given under
this Agreement shall be deemed effective when received if delivered by
hand, telecopy, telex or telegram or three (3) days after depositing if
placed in the U.S. mail for delivery by registered or certified mail,
return receipt requested, postage prepaid and addressed to the
appropriate party at the address set forth on the first page of this
Agreement. Such addresses may be changed by giving written notice to
the other party of such different address pursuant to the provisions of
this section.
c. Nonassignment. Schnase shall not assign, transfer or sell
all or any part of his rights or obligations hereunder without the
prior written consent of EPII. This Agreement shall be binding upon and
inure to the benefit of any successor or assignee of EPII and Eagle and
of any permitted successors and assigns of Schnase as provided above.
d. Controlling Law and Arbitration. This Agreement shall be
governed by and construed in accordance with the law of the State of
Minnesota without regard to the conflicts of laws and rules thereof.
All disputes, controversies or differences arising out of or in
connection with this Agreement or the making thereof, including claims
of fraud in the inducement, which cannot be settled by mutual agreement
shall be finally settled by binding arbitration pursuant to the Rules
of Commercial Arbitration of the American Arbitration Association then
in effect, except as specified herein and judgment upon the award
rendered by the arbitrator may be entered in any court having
jurisdiction thereof. Any arbitration hereunder shall be held in
Minneapolis, Minnesota. The arbitration shall be conducted by a single
arbitrator selected by the parties. The arbitrator shall be a retired
state or federal judge or an attorney who has practiced business
litigation for at least 10 years. In the event that the parties are
unable to agree on an arbitrator, the arbitrator shall be selected by
the American Arbitration Association. The hearings shall be conducted
on an expedited schedule. They shall commence no later than 20 days
after initiation of proceedings and shall be completed within 20 days,
and the arbitrator shall make the award within 20 days of the close of
the hearings. The arbitrator shall have the authority to award any
remedy or relief that a court of the State of Minnesota could order or
grant, including, without limitation, equitable remedies, specific
performance of any obligation created under this Agreement, the
awarding of punitive damages, the issuance of an injunction or the
imposition of sanctions for abuse or frustration of the arbitration
process.
e. Entire Agreement. This Agreement constitutes the entire
Agreement between the parties and supersedes any and all prior and
contemporaneous oral or written understandings between the parties
relating to the subject matter hereof, except for the Stock Option
Agreements and Deferred Compensation Agreement referred to herein.
IN WITNESS WHEREOF, the parties have hereunto set their hands as of the date
indicated but effective as of January 1, 1997.
January ___, 1997 ___________________________________
Larry D. Schnase
STATE OF NEBRASKA )
) ss:
COUNTY OF )
I , a Notary Public, do hereby certify that Larry D. Schnase,
personally known to me to be the same person whose name is subscribed to the
foregoing instrument, appeared before me this day in person and acknowledged
that he signed and delivered the said instrument as his free and voluntary act,
for the uses and purposes therein set forth.
Given under my hand and official seal this _____ day of January, 1997.
NOTARY PUBLIC
My Commission Expires:
Date
January ___, 1997 Eagle Pacific Industries, Inc.
___________________________________
William H. Spell, CEO
STATE OF MINNESOTA )
)ss:
COUNTY OF HENNEPIN )
Before me, a notary public for and within the county of Hennepin, State
of Minnesota, this day of January 1997 personally appeared William H. Spell, to
me known, and, who after being first duly sworn deposed and stated that he is
the Chief Executive Officer of Eagle Pacific Industries, Inc., and that he is
duly authorized by Eagle Pacific Industries, Inc., to execute and acknowledge
the foregoing Consulting Agreement and Release and that said William H. Spell
did acknowledge to me that he executed the same as his own free act and deed on
behalf of Eagle Pacific Industries, Inc.
Given under my hand and official seal this _____ day of January, 1997.
NOTARY PUBLIC
My Commission Expires:
Date
January ___, 1997 Eagle Plastics, Inc.
___________________________________
William H. Spell, CEO
STATE OF MINNESOTA )
)ss:
COUNTY OF HENNEPIN )
Before me, a notary public for and within the county of Hennepin, State
of Minnesota, this day of January 1997 personally appeared William H. Spell, to
me known, and, who after being first duly sworn deposed and stated that he is
the Chief Executive Officer of Eagle Plastics, Inc., and that he is duly
authorized by Eagle Plastics, Inc., to execute and acknowledge the foregoing
Consulting Agreement and Release and that said William H. Spell did acknowledge
to me that he executed the same as his own free act and deed on behalf of Eagle
Plastics, Inc.
Given under my hand and official seal this _____ day of January, 1997.
NOTARY PUBLIC
My Commission Expires:
Date
EAGLE PACIFIC INDUSTRIES, INC.
AND SUBSIDIARIES
EBITDA BONUS PLAN
The following is a summary of the Eagle Pacific Industries, Inc. and
Subsidiaries EBITDA Bonus Plan.
"EBITDA" shall mean the earnings before interest, taxes, depreciation and
amortization for the particular company determined by the auditors for Eagle
Pacific Industries, Inc. ("EPII") in accordance with GAAP for each fiscal year
of EPII.
At or before the beginning of each fiscal year, the Board of Directors of EPII
shall establish three levels of EBITDA for EPII and for each of its
subsidiaries. If the lowest level is achieved, each employee participating in
the EBITDA Bonus Plan will receive one-third of his/her maximum bonus. If the
second highest level of EBITDA is achieved, each employee participating in the
EBITDA Bonus Plan will receive two-thirds of his/her maximum bonus. If the
highest level of EBITDA is achieved, each employee participating in the EBITDA
Bonus Plan will receive his/her maximum bonus. At the same time the Board of
Directors of EPII shall establish the eligible employees, the maximum amount of
their bonuses and in the company or companies on which the bonus will be based
for that year.
An employee must be employed by the Company or one of its subsidiaries on the
last day of the fiscal year in order to be entitled to receive any EBITDA bonus
for that year.
THE EAGLE PACIFIC INDUSTRIES, INC.
LEVERAGED EQUITY PURCHASE PLAN
PURPOSE:
The purpose of The Eagle Pacific Industries, Inc. Leveraged Equity
Purchase Plan ("LEPP") is to more closely align the goals and motivation of
management with those of other Eagle Pacific shareholders and to provide key
personnel with a long-term capital accumulation opportunity. This purpose is
accomplished by providing selected management employees with loans to permit
them to acquire and retain Eagle Pacific Common Stock.
DEFINITIONS:
"Common Stock" shall mean the common stock of Eagle Pacific, par value $.50 per
share.
"Compensation Committee" shall mean the compensation committee of the Board of
Directors of Eagle Pacific as constituted from time to time; provided, however,
each member of the Compensation Committee shall be a "disinterested" person
within the meaning of Rule 16b-3, as then in effect, under the Securities
Exchange Act of 1934.
"Determination Date" shall mean the date on which the Compensation Committee
determined that an Employee was an Eligible Employee.
"Eligible Employee" shall mean an Employee that the Compensation Committee has
determined may be granted a loan pursuant to the LEPP.
"Employee" shall mean each person who is an employee of Eagle Pacific which term
shall include both full and part-time employees but shall not include
independent contractors providing services to Eagle Pacific.
"I.R.C." shall mean the Internal Revenue Code of 1986, as amended.
"LEPP" or the "Plan" shall mean The Eagle Pacific Industries, Inc. Leveraged
Equity Purchase Plan as described herein.
"Loan" shall mean a loan made to a Participant pursuant to this Plan and
evidenced by a Promissory Note.
"Participant" shall refer to an Eligible Employee that has a Loan outstanding.
"Plan Administrator" shall mean the person or persons designated as such by the
Compensation Committee. If no person has been designated, the Plan Administrator
shall be the Secretary of Eagle Pacific.
"Promissory Note" shall mean a promissory note evidencing a loan made to a
Participant by Eagle Pacific pursuant to the terms of this Plan.
"Purchased Shares" shall mean all of the shares of Common Stock purchased by a
Participant at the time a Loan was made to such Participant hereunder.
"Eagle Pacific" shall mean Eagle Pacific Industries, Inc., a Minnesota
corporation, with its principal office in Minneapolis, Minnesota.
PLAN:
1. Selection of Eligible Employees.
From time to time, the Compensation Committee shall determine the
Employees who may be granted Loans hereunder and the maximum amount of the
Loans. As soon as possible after the determination by the Compensation
Committee, the Plan Administrator will notify each Eligible Employee in writing
of his/her eligibility and the maximum amount of the Loans that he/she may
receive. An Eligible Employee shall cease being an Eligible Employee on the
earlier to occur of (i) the date on which he/she ceases to be an Employee or
(ii) the date six months after his/her Determination Date. The rights of an
Eligible Employee to borrow money hereunder are not transferable and may not be
exercised by any person other than the Eligible Employee.
2. The Loan.
An Eligible Employee may borrow from Eagle Pacific 90% of the cost of
purchasing the number of shares of Common Stock up to the Loan amount authorized
by the Compensation Committee. The Eligible Employee may only borrow the funds
from Eagle Pacific if they are used to acquire Common Stock pursuant to the
LEPP. The Loan will be evidenced by a Promissory Note. The terms of the
Promissory Note will be:
a. The unpaid principal balance will accrue simple interest at the
prime rate in effect at Fleet National Bank plus one-quarter of one
percent (1/4%) which shall be paid annually on the yearly anniversaries
of the date of the Promissory Note.
b. The payment of the unpaid principal balance shall be due in full on
the earlier to occur of
i. the date determined by the Compensation Committee, which
date shall not be later than the fifth anniversary of the
Determination Date,
ii. the Participant's termination of employment with Eagle
Pacific for any reason other than death, disability or
termination of employment after the age of 60 years, or
iii. the Participant sells or otherwise disposes or attempts
to dispose of any of the Purchased Shares.
c. The Promissory Note will be secured by a pledge of all of the
Purchased Shares.
d. The Promissory Note will be non-recourse to the Participant and
payment may be satisfied by voluntary surrender of all of the Purchased
Shares or by foreclosure by the holder of the Promissory Note on the
Purchased Shares.
e. Any cash dividends paid with respect to the Purchased Shares will be
applied by Eagle Pacific, in payment on the Promissory Note. Any
non-cash dividends, distributions or stock splits made with respect to
the Purchased Shares shall be retained by Eagle Pacific as additional
security for the Loan.
f. The proceeds of any special bonus arrangement provided by Eagle
Pacific to the Participant for the purpose of repaying the Loan shall
not be paid to the Participant but shall be applied directly by Eagle
Pacific in payment on the Promissory Note.
g. Sections 415 and 401(a)(17) of the I.R.C. may restrict the ability
of certain highly compensated Employees from receiving their full
benefits under certain employee benefit plans sponsored by Eagle
Pacific. As a result, amounts equal to the value of the number of
shares or dollars the Participant would have been allocated under any
and all employee benefit plans sponsored by Eagle Pacific but for the
limitations under Section 415 and Section 401(a)(17) of the I.R.C. will
be applied by Eagle Pacific in payment on the Promissory Note at the
time such allocations would have been made to the Participant.
h. The Participant may prepay the Loan in whole or in part at any time
without penalty.
i. All payments made or applied on the Promissory Note shall be used
first to pay the accrued but unpaid interest and then to reduce the
unpaid principal balance.
3. Purchase of Common Stock.
During the six month period following the Determination Date, an
Eligible Employee may borrow funds as set forth above to purchase shares of
Common Stock on the following terms:
a. All purchases by the Eligible Employee will be made on the open
market through a licensed broker-dealer selected by the Plan
Administrator.
b. The broker-dealer shall follow all guidelines for purchasing shares
determined by the Plan Administrator.
c. Eagle Pacific will pay the fees and commissions of the broker-dealer
executing the purchase of the Common Stock.
d. The Plan Administrator may prohibit Eligible Employees from trading
in Common Stock purchased or to be purchased with a Loan at times that
Eagle Pacific is aware of material non-public information about its
business.
e. An Eligible Employee that wishes to borrow funds pursuant to this
Plan to acquire Common Stock may do so by giving written notice to the
Plan Administrator indicating the Eligible Employee's name, social
security number, date of birth, home address, the number of shares of
Common Stock he/she desires to acquire hereunder and any other
information reasonably requested by the Plan Administrator.
f. As soon as the purchase of Common Stock requested by the Eligible
Employee has been executed by the broker-dealer, the Eligible Employee
will (i) execute and deliver the Promissory Note to the Plan
Administrator who will forward the proceeds of the Loan to the
Broker-dealer and (ii) deliver his/her check or other funds directly to
the broker-dealer in an amount equal to 10% of the purchase price of
the Purchased Shares.
g. The certificate representing the Purchased Shares will be registered
in the name of the Participant, but it will be held by Eagle Pacific
and pledged to Eagle Pacific to secure payment of the Promissory Note.
So long as the Participant owns the Purchased Shares and is not in
default under the Loan, he/she shall retain the right to vote the
Purchased Shares.
4. Miscellaneous.
a. The Board of Directors of Eagle Pacific may amend or terminate this
Plan at any time; provided, however, no such termination or amendment
shall affect any Loan or Promissory Note outstanding at the time the
LEPP is amended by the Board of Directors of Eagle Pacific.
b. The Compensation Committee may, without further action by the Board
of Directors or shareholders of Eagle Pacific, make Loans hereunder up
to an aggregate amount of $600,000 upon a finding that Eagle Pacific
can reasonably expect to benefit from each such Loan.
c. A Participant may not sell, transfer or otherwise dispose of the
Purchased Shares within six months of their acquisition except in the
case of the Participant's death or disability.
APPROVALS:
The foregoing plan was adopted by the Board of Directors of Eagle
Pacific at its meeting on October 28, 1996.
_________________________________
Secretary
THE EAGLE PACIFIC INDUSTRIES, INC.
LEVERAGED EQUITY PURCHASE PLAN
AGREEMENT
PURPOSE:
The purpose of The Eagle Pacific Industries, Inc. Leveraged Equity
Purchase Plan ("LEPP") is to more closely align the goals and motivation of
management with those of other Eagle Pacific shareholders and to provide key
personnel with a long-term capital accumulation opportunity. This purpose is
accomplished by providing selected management employees with loans to permit
them to acquire and retain Eagle Pacific Common Stock.
Pursuant to the provisions of the LEPP, and by specific action of the
Compensation Committee, Eagle Pacific hereby grants ____________ ("Eligible
Employee") the right to obtain a loan of ___________ dollars ($__________) from
Eagle Pacific Industries, Inc. to purchase shares of Eagle Pacific Common Stock
on the open market, with a determination date of November 13, 1996 and
expiration date of May 13, 1996 in accordance with and subject to the following
terms and conditions. Capitalized terms used herein shall have the meanings
ascribed to them in the LEPP.
1. The Loan
The Eligible Employee may borrow from Eagle Pacific 90% of the cost of
purchasing shares of Common Stock up to the Loan amount authorized by
the Compensation Committee. The Eligible Employee may only borrow the
funds from Eagle Pacific if they are used to acquire Common Stock
pursuant to the LEPP. The Loan will be evidenced by a Promissory Note.
The terms of the Promissory Note will be:
a. The unpaid principal balance will accrue simple interest at
the prime rate in effect at Fleet National Bank plus
one-quarter of one percent (1/4%) which shall be paid annually
on the yearly anniversaries of the date of the Promissory
Note.
b. The payment of the unpaid principal balance shall be due in
full on the earlier to occur of
i. the fifth anniversary of the date of this Agreement,
ii. the Participant's termination of employment with
Eagle Pacific for any reason other than death,
disability or termination of employment after the age
of 60 years, or
iii. the Participant sells or otherwise disposes or
attempts to dispose of any of the Purchased Shares.
c. The Promissory Note will be secured by a pledge of all of the
Purchased Shares.
d. The Promissory Note will be non-recourse to the Participant
and payment may be satisfied by voluntary surrender of all of
the Purchased Shares or by foreclosure by the holder of the
Promissory Note on the Purchased Shares.
e. Any cash dividends paid with respect to the Purchased Shares
will be applied by Eagle Pacific in payment on the Promissory
Note. Any non-cash dividends, distributions, or stock splits
made with respect to the Purchased Shares shall be retained by
Eagle Pacific as additional security for the Loan.
f. The proceeds of any special bonus arrangement provided by
Eagle Pacific to the Participant for the purpose of repaying
the Loan shall not be paid to the Participant but shall be
applied directly by Eagle Pacific in payment on the Promissory
Note.
g. Sections 415 and 401(a)(17) may restrict the ability of
certain highly compensated Employees from receiving their full
benefits under certain employee benefit plans sponsored by
Eagle Pacific. As a result, amounts equal to the value of the
number of shares or dollars the Participant would have been
allocated under any and all employee benefit plans sponsored
by Eagle Pacific but for the limitations under Section 415 and
Section 401(a)(17) of the Internal Revenue Code will be
applied by Eagle Pacific in payment on the Promissory Note at
the time such allocations would have been made to the
Participant.
h. The Participant may prepay the Loan in whole or in part at any
time without penalty.
i. All payments made or applied on the Promissory Note shall be
used first to pay the accrued but unpaid interest and then to
reduce the unpaid principal balance.
2. Purchase of Common Stock
During the six-month period following the Determination Date, the
Eligible Employee may borrow funds as set forth above to purchase
shares of Common Stock on the following terms:
a. All purchases by the Eligible Employee will be made on the
open market through a licensed broker-dealer selected by the
Plan Administrator.
b. The broker-dealer shall follow all guidelines for purchasing
shares determined by the Plan Administrator;
c. Eagle Pacific will pay the fees and commissions of the
broker-dealer executing the purchase of the Common Stock;
d. The Plan Administrator may prohibit the Eligible Employee from
trading in Common Stock purchased or to be purchased with a
Loan at times that Eagle Pacific is aware of material
non-public information about its business;
e. Eligible Employee that wishes to borrow funds pursuant to this
Plan to acquire Common Stock may do so by giving written
notice to the Plan Administrator (Corporate Secretary)
indicating the Eligible Employee's name, social security
number, date of birth, home address, the number of shares of
Common Stock he/she desires to acquire hereunder and any other
information reasonably requested by the Plan Administrator;
f. As soon as the purchase of Common Stock requested by Eligible
Employee has been executed by the broker-dealer, Eligible
Employee will (i) execute and deliver the Promissory Note to
the Plan Administrator who will forward the proceeds of the
Loan to the broker-dealer and (ii) deliver his/her check or
other funds directly to the broker-dealer in an amount equal
to 10% of the purchase price of the Purchased Shares.
g. The certificate representing the Purchased Shares will be
registered in the name of the Participant, but it will be held
by Eagle Pacific and pledged to Eagle Pacific to secure
payment of the Promissory Note. So long as the Participant
owns the Purchased Shares and is not in default under the
Loan, he/she shall retain the right to vote the Purchased
Shares.
3. Conditions
a. An Eligible Employee shall cease being an Eligible Employee on
the earlier to occur of (i) the date on which he/she ceases to
be an Employee or (ii) the date six months after his/her
Determination Date. The rights of an Eligible Employee to
borrow money hereunder are not transferable and may not be
exercised by any person other than the Eligible Employee.
b. The Board of Directors of Eagle Pacific may amend or terminate
this Plan at any time provided, however, no such termination
or amendment shall affect any Loan or Promissory Note
outstanding at the time the LEPP is amended by the Board of
Directors of Eagle Pacific.
c. A Participant may not sell, transfer, or otherwise dispose of
the Purchased Shares within six months of their acquisition
except in the case of the Participant's death or disability.
Date:
-------------------------
EAGLE PACIFIC INDUSTRIES, INC.
By
---------------------------
Its Chairman
---------------------------
Accepted and Confirmed as of the above date:
By
---------------------------
<TABLE>
<CAPTION>
EXHIBIT 11
EARNINGS PER SHARE SCHEDULE
Calculation of net income under the modified treasury
stock method:
1996 1995 1994
---- ---- ----
Primary
<S> <C> <C> <C>
Average common stock outstanding 5,444,683 3,899,587 4,507,321
Common stock equivalents 1,162,441 -- --
----------- ----------- -----------
6,607,124 3,899,587 4,507,321
=========== =========== ===========
Net income (loss) applicable to common stock $ 1,660,169 $(1,058,513) $ 1,207,145
Assumed interest expense reduction 81,776 -- 20,567
----------- ----------- -----------
$ 1,741,945 $(1,058,513) $ 1,227,712
=========== =========== ===========
Net income per share $ .26 $ .27 $ .27
=========== =========== ===========
Fully diluted
Average common stock outstanding 6,150,859 3,899,587 4,507,321
Preferred stock 18,750 -- 1,383,500
Common stock equivalents 1,162,441 -- --
----------- ----------- -----------
7,332,050 3,899,587 5,890,821
=========== =========== ===========
Net income applicable to common stock $ 1,660,169 $(1,058,513) $ 1,207,145
Preferred stock dividends 90,791 -- 193,289
Assumed interest expense reduction 81,776 -- 20,567
----------- ----------- -----------
$ 1,832,736 $(1,058,513) $ 1,421,001
=========== =========== ===========
Net income per share $ .25 $ (.27) $ --
=========== =========== ===========
</TABLE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS'
We consent to the incorporation by reference in Registration Statements Nos.
333-17205 and 333-17207 of Eagle Pacific Industries, Inc. on Form S-8 and
Registration Statement No. 33-79098 of Eagle Pacific Industries, Inc. on Form
S-3 of our report dated February 14, 1997, appearing in this Annual Report on
Form 10-K of Eagle Pacific Industries, Inc. for the year ended December 31,
1996.
/s/ Deloitte & Touche LLP
- -----------------------------------------
Deloitte & Touche LLP
Minneapolis, Minnesota
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 6,569,094
<ALLOWANCES> 195,100
<INVENTORY> 10,279,169
<CURRENT-ASSETS> 17,189,645
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37,500
0
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